Issue
Where a debt incurred by a debtor company is forgiven by a creditor company that is a member of the same group of related companies, can the creditor company, under section 245-230 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be taken to have a net forgiven amount in respect of the forgiveness if it has deductible revenue losses?
Decision
Yes. The definition of 'non-debtor company' in subsection 245-245(1) of Schedule 2C to the ITAA 1936 does not exclude companies on the basis that they were the creditor.
Facts
After 27 June 1996, Debtor Company was forgiven a debt.
The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
For the purposes of subsection 245-225(2) of Schedule 2C to the ITAA 1936, Debtor Company and Creditor Company were members of the same group of related companies.
Creditor Company is the only company in the group of related companies to have deductible revenue losses for the purposes of subsection 245-230(1) of Schedule 2C to the ITAA 1936.
Reasons for Decision
Section 245-10 of Schedule 2C to the ITAA 1936 provides that Schedule 2C to the ITAA 1936 applies where the forgiveness of a commercial debt occurs after 27 June 1996.
Pursuant to section 245-230 of Schedule 2C to the ITAA 1936, where one or more non-debtor companies in the group of related companies have deductible revenue losses, what would otherwise be the Debtor Company's net forgiven amount is disregarded, except for the purposes of Subdivision 245-G of Schedule 2C to the ITAA 1936.
The term 'non-debtor company' is defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936 as meaning a company in the group other than the company that incurred the debt.
Accordingly, Creditor Company is a non-debtor company, despite having been the relevant creditor. As Creditor Company has deductible revenue losses for the purposes of subsection 245-230(1) of Schedule 2C to the ITAA 1936 the formula in subsection 245-230(3) of Schedule 2C to the ITAA 1936 applies: Company's deductible revenue losses / (Total deductible revenue losses' * disregarded net forgiven amount)
As Creditor Company is the only group company to have deductible revenue losses, then pursuant to the formula, it is now taken to have a net forgiven amount equal to the Debtor company's disregarded net forgiven amount.