Issue
Can paragraph 245-40(c) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) operate to cause the Schedule not to apply to a commercial debt which is forgiven by a company because of the company directors' love and affection towards the debtor?
Decision
Yes. Paragraph 245-40(c) of Schedule 2C to the ITAA 1936 does not require that the creditor be a natural person, only that the reason for forgiveness be 'natural love and affection'.
Facts
Debtor, a natural person, incurred a debt in the form of a loan from a company Creditor.
The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
After 27 June 1996 the debt was forgiven by Creditor in accordance with a resolution made by Creditor's directors for reasons of their natural love and affection for Debtor.
Debtor was able to repay the debt at the time of forgiveness.
Debtor was not an employee of Creditor.
Fringe Benefits Tax was not payable in respect of the forgiveness.
Reasons for Decision
Section 245-10 of Schedule 2C to the ITAA 1936 provides that Schedule 2C applies where a forgiveness of a commercial debt occurs after 27 June 1996.
Paragraph 245-40(c) of Schedule 2C to the ITAA 1936 provides that Schedule 2C does not apply where the debt is forgiven for reasons of natural love and affection.
The paragraph does not specify that Creditor must be a natural person. It only requires that the debt was 'forgiven for reasons of natural love and affection'.