Commercial debt forgiveness - no consideration paid or given in respect of the forgiveness of a non-moneylending debt

Where there is no consideration paid in respect of the forgiveness of a non-moneylending commercial debt, will the gross forgiven amount of the debt for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be equal to the debt's notional value at the time of the forgiveness where the debt had a market value at time of forgiveness?

No. In accordance with subsection 245-75(2) of Schedule 2C to the ITAA 1936 the gross forgiven amount in respect of the forgiveness of the debt is the excess (if any) of the notional value of the debt over any deemed consideration taken to have been paid under subsection 245-65(2) of Schedule 2C.

Debtor incurred a debt that was not a moneylending debt as defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936.

After 27 June 1996 Creditor agreed to forgive the balance of the debt payable. No consideration was paid or given in respect of the forgiveness of the debt.

At the time of forgiveness the debt had a notional value under section 245-55 of Schedule 2C to the ITAA 1936 of $10 000 and a market value of $2 000.

Debtor is taken to have paid an amount equal to the market value of the debt at the time of forgiveness, pursuant to paragraph 245-65(2)(a) of Schedule 2C to the ITAA 1936 as there is no consideration in respect of the forgiveness of a non moneylending debt.

Accordingly, the gross forgiven amount of the debt is calculated under subsection 245-75(2) of Schedule 2C to the ITAA 1936.

Pursuant to paragraph 245-75(2)(a) of Schedule 2C to the ITAA 1936 the gross forgiven amount of the debt is $8 000 being the excess of the $10 000 notional value of the debt at the time of forgiveness over its then market value of $2 000.