Issue
Where, because of its deductible revenue losses, a related company is taken to have a net forgiven amount pursuant to subsection 245-230(3) of Subdivision 245-G of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936), is that net forgiven amount only to be applied to reduce those deductible revenue losses?
Decision
No. That net forgiven amount constitutes part (or all) of the related company's total net forgiven amount under section 245-105 of Schedule 2C to the ITAA 1936, and in accordance with that section is required to be applied in successively reducing the related company's deductible revenue losses, deductible net capital losses, deductible expenditures and the cost base of certain of its capital gains tax (CGT) assets.
Facts
Debtor Company has a net forgiven amount for the purposes of section 245-85 of Schedule 2C to the ITAA 1936 because of the forgiveness of a commercial debt it had owed.
Pursuant to subsection 245-230(3) of Schedule 2C to the ITAA 1936, Related Company is taken to have a net forgiven amount, calculated by reference to its deductible revenue losses, due to it being part of a group of related companies with Debtor Company.
Reasons for Decision
Where a commercial debt is forgiven on or after 27 June 1996, the total net forgiven amount of a debtor for a particular year must be applied in accordance with section 245-105 of Schedule 2C to the ITAA 1936.
The net forgiven amount that Related Company is taken to have pursuant to subsection 245-230(3) of Schedule 2C to the ITAA 1936, is to be included in the calculation of its total net forgiven amount for the relevant forgiveness year of income.
That total net forgiven amount is to be applied in accordance with section 245-105 of Schedule 2C to the ITAA 1936 to reduce successively the following tax attributes of Related Company:-
deductible revenue losses under subsection 245-105(5) of Schedule 2C.
deductible net capital losses in accordance with subsection 245-105(6) of Schedule 2C.
deductible expenditures, if any, in accordance with subsection 245-105(7) of Schedule 2C.
cost bases of certain assets in accordance with subsection 245-105(8) of Schedule 2C.