Issue
Where a company is taken by Subdivision 245-G of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) to have a net forgiven amount, can it then make an agreement under section 245-90 of Schedule 2C to the ITAA 1936 with the creditor to reduce that net forgiven amount?
Decision
No. Subparagraph 245-90(2)(b)(ii) of Schedule 2C to the ITAA1936 provides that such an agreement reduces the debtor's 'provisional net forgiven amount', not any net forgiven amount that a company maybe taken to have under Subdivision 245-G of Schedule 2C to the ITAA 1936.
Facts
After 27 June 1996, Debtor Company was forgiven a debt by Creditor Company.
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, Creditor Company and Deemed Debtor Company were members of the same group of related companies.
Creditor Company made a capital loss for capital gains tax purposes as a result of the forgiveness of the relevant debt.
Under subsection 245-230(3) of Schedule 2C to the ITAA 1936 Deemed Debtor Company was taken to have a net forgiven amount in respect of the forgiveness.
Creditor Company and Deemed Debtor Company now want to make an agreement, under section 245-90 of Schedule 2C to the ITAA 1936, to reduce Deemed Debtor Company's net forgiven amount, through Creditor Company forgoing its relevant capital loss.
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.
Paragraph 245-90(2)(b) of Schedule 2C to the ITAA 1936 provides that the relevant agreed amount for the purposes of section 245-90 of Schedule 2C has the effect of reducing a debtor's 'provisional net forgiven amount', as defined in paragraph 245-85(2)(b) of Schedule 2C to the ITAA 1936.
This then results in the debtor having a net forgiven amount under subparagraph 245-90(2)(b)(iii) of Schedule 2C to the ITAA 1936.
Under subsection 245-230(3) of Schedule 2C to the ITAA 1936, Deemed Debtor Company was taken to have a net forgiven amount, not a provisional net forgiven amount, therefore section 245-90 of Schedule 2C to the ITAA 1936 cannot then be applied to reduce that net forgiven amount. Note: An agreement under section 245-90 of Schedule 2C to the ITAA 1936 could have been made in the requisite period between Debtor Company and Creditor Company that would have reduced Debtor Company's net forgiven amount as calculated before the application of Subdivision 245-G of Schedule 2C to the ITAA 1936. This would then have resulted in Subdivision 245-G of Schedule 2C to the ITAA 1936 calculating a lesser net forgiven amount in respect of Deemed Debtor Company.