Commonwealth Consolidated Acts Commonwealth Consolidated ActsIncome Tax Assessment Act 1936
1 Schedule 2C
Repeal the Schedule.
Income Tax Assessment Act 1997
2 After Division 243
Insert:
Division 245 -- Forgiveness of commercial debts
Table of Subdivisions
Guide to Division 245
245 - A Debts to which operative rules apply
245 - B What constitutes forgiveness of a debt
245 - C Calculation of gross forgiven amount of a debt
245 - D Calculation of net forgiven amount of a debt
245 - E Application of net forgiven amounts
245 - F Special rules relating to partnerships
245 - 1 What this Division is about
When a creditor forgives a commercial debt you owe, you make a gain. This is usually not included in your assessable income. Instead, this Division offsets the forgiven amount against amounts that could otherwise reduce your taxable income in the same or a later income year. Those amounts are:
(a) your tax losses and net capital losses; and
(b) capital allowances and some similar deductions; and
(c) the cost bases of your CGT assets.
245 - 2 Simplified outline of this Division
(1) This Division applies to any commercial debt (or part of a commercial debt) you owe that is forgiven.
Note: This Division does not apply if:
(a) the debt is waived and the waiver constitutes a fringe benefit; or
(b) the amount of the debt has been, or will be, included in your assessable income in any income year; or
(c) the debt is forgiven under an Act relating to bankruptcy; or
(d) the debt is forgiven by will; or
(e) the debt is forgiven for reasons of natural love and affection; or
(f) the debt is a tax - related liability.
(2) The net forgiven amount of a debt is worked out by reducing the value of your forgiven debt by:
(a) any consideration you provided for the forgiveness; and
(b) any amounts that this Act already brings to account because of the forgiveness.
(3) The net forgiven amounts of all your forgiven debts in an income year are added up. This total net forgiven amount is applied to reduce the following amounts (in the following order):
(a) your tax losses from previous income years;
(b) your net capital losses from previous income years;
(c) the deductions you would otherwise get in the income year, or in a later year, because of expenditure from a previous year (e.g. the capital allowance deductions you would get for the cost of a depreciating asset);
(d) the cost bases of your CGT assets.
(4) Any unapplied total net forgiven amount is disregarded.
(5) Special rules apply to debts of partnerships.
Subdivision 245 - A -- Debts to which operative rules apply
245 - 5 What this Subdivision is about
This Division applies to a debt if you can deduct interest payable on the debt.
Table of sections
Application of Division
245 - 10 Commercial debts
245 - 15 Non - equity shares
245 - 20 Parts of debts
Subdivisions 245 - C to 245 - G apply to a debt of yours if:
(a) the whole or any part of interest, or of an amount in the nature of interest, paid or payable by you in respect of the debt has been deducted, or can be deducted, by you; or
(b) interest, or an amount in the nature of interest, is not payable by you in respect of the debt but, had interest or such an amount been payable, the whole or any part of the interest or amount could have been deducted by you; or
(c) interest or an amount mentioned in paragraph (a) or (b) could have been deducted by you apart from the operation of a provision of this Act (other than paragraphs 8 - 1(2)(a), (b) and (c)) that has the effect of preventing a deduction.
Note: Paragraphs 8 - 1(2)(a), (b) and (c) prevent deductions for capital, private or domestic outgoings and for outgoings relating to exempt income or non - assessable non - exempt income.
This Division applies to a * non - equity share issued by a company as if it were a debt to which section 245 - 10 applies that is owed by the company to the relevant shareholder.
This Division applies to part of a debt in the same way as it applies to a whole debt.
Note: This Division treats interest, or an amount in the nature of interest, payable on a debt as being a separate debt if the interest or amount has accrued but has not been paid.
Subdivision 245 - B -- What constitutes forgiveness of a debt
245 - 30 What this Subdivision is about
A debt is forgiven if you no longer have to pay it.
However, this Division does not apply to some cases of forgiveness, such as bankruptcy.
Table of sections
Operative provisions
245 - 35 What constitutes forgiveness of a debt
245 - 36 What constitutes forgiveness of a debt if the debt is assigned
245 - 37 What constitutes forgiveness of a debt if a subscription for shares enables payment of the debt
245 - 40 Forgivenesses to which operative rules do not apply
245 - 45 Application of operative rules if forgiveness involves an arrangement
245 - 35 What constitutes forgiveness of a debt
A debt is forgiven if and when:
(a) the debtor's obligation to pay the debt is released or waived, or is otherwise extinguished other than by repaying the debt in full; or
(b) the period within which the creditor is entitled to sue for the recovery of the debt ends, because of the operation of a statute of limitations, without the debt having been paid.
245 - 36 What constitutes forgiveness of a debt if the debt is assigned
A debt is forgiven if and when the creditor assigns the right to receive payment of the debt to another entity (the new creditor ) and the following conditions are met:
(a) either the new creditor is the debtor's * associate or the assignment occurred under an * arrangement to which the new creditor and debtor were parties;
(b) the right to receive payment of the debt was not acquired by the new creditor in the ordinary course of * trading on a market, exchange or other place on which, or facility by means of which, offers to sell, buy or exchange securities (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936 ) are made or accepted.
Note 1: Division 16E of Part III of the Income Tax Assessment Act 1936 brings to account gains and losses on some securities on an accruals basis.
Note 2: This Division also applies if an assigned debt is subsequently forgiven by the new creditor. Section 245 - 61 tells you how to work out the value of the debt in that case.
If an entity subscribes for * shares in a company to enable the company to make a payment in or towards discharge of a debt it owes to the entity, the debt is forgiven when, and to the extent that, the company applies any of the money subscribed in or towards payment of the debt.
245 - 40 Forgivenesses to which operative rules do not apply
Subdivisions 245 - C to 245 - G do not apply to a * forgiveness of a debt if:
(a) the debt is waived and the waiver constitutes a * fringe benefit; or
Note: The waiver by an employer of a debt owed by an employee is usually a fringe benefit: see section 14 of the Fringe Benefits Tax Assessment Act 1986 .
(b) the amount of the debt has been, or will be, included in the assessable income of the debtor in any income year; or
(c) the forgiveness is effected under an Act relating to bankruptcy; or
(d) the forgiveness is effected by will; or
(e) the forgiveness is for reasons of natural love and affection; or
(f) the debt is a * tax - related liability or a civil penalty under Division 290 in Schedule 1 to the Taxation Administration Act 1953 (about penalties for promoters and implementers of tax avoidance schemes).
Note: If the forgiveness of your debt involved an arrangement which was entered into before 28 June 1996, see section 245 - 10 of the Income Tax (Transitional Provisions) Act 1997 .
245 - 45 Application of operative rules if forgiveness involves an arrangement
(1) If:
(a) the debtor and the creditor in relation to a debt enter into an * arrangement; and
(b) under the arrangement, the debtor's obligation to pay the debt is to cease at a particular future time; and
(c) the cessation of the obligation is to occur without the debtor incurring any financial or other obligation (other than an obligation that, having regard to the debtor's circumstances, is of a nominal or insignificant amount or kind);
Subdivisions 245 - C to 245 - G apply as if the debt were * forgiven when the arrangement is entered into.
(2) If, after the arrangement is entered into, the debt is forgiven, the later forgiveness is disregarded for the purposes of those Subdivisions.
Subdivision 245 - C -- Calculation of gross forgiven amount of a debt
245 - 48 What this Subdivision is about
The amount of forgiveness (called the gross forgiven amount) for the debtor reflects the loss that the creditor makes for tax purposes. It is worked out in 2 steps:
(a) the value of the debt when it was forgiven is worked out on the basis that you were solvent both then and when you incurred the debt; and
(b) the value of the debt is then offset by any consideration given for the forgiveness of the debt.
The difference between the value of the debt and the amount offset is the gross forgiven amount.
If the debt was owed by several debtors, the gross forgiven amount is divided between them equally .
Table of sections
Working out the value of a debt
245 - 50 Extent of forgiveness if consideration is given
245 - 55 General rule for working out the value of a debt
245 - 60 Special rule for working out the value of a non - recourse debt
245 - 61 Special rule for working out the value of a previously assigned debt
Working out if an amount is offset against the value of the debt
245 - 65 Amount offset against amount of debt
Working out the gross forgiven amount
245 - 75 Gross forgiven amount of a debt
245 - 77 Gross forgiven amount shared between debtors
Working out the value of a debt
245 - 50 Extent of forgiveness if consideration is given
If any consideration is paid or given in respect of the * forgiveness of a debt, the debt that is forgiven is:
(a) the obligation that existed before the forgiveness to pay so much of the debt as is expressed, or is taken, to be forgiven; and
(b) the obligation that existed before the forgiveness to pay any part of the debt to which paragraph (a) does not apply but which ceases to be payable as a result of the payment or giving of the consideration.
Example: Daniel owes Samara $100. Samara agrees to accept $60 in full payment of the debt.
If their agreement specifies that Samara forgives the whole debt in return for $60, paragraph (a) provides that the forgiven debt is $100.
If their agreement instead requires Daniel to repay $60 and specifies that Samara forgives the remaining $40, paragraph (a) would deal with the $40 and paragraph (b) would add the remaining $60, again producing a forgiven amount of $100.
In either case, the $60 Daniel pays is offset against the forgiven amount of $100 in working out the gross forgiven amount of the debt: see sections 245 - 65 and 245 - 75.
245 - 55 General rule for working out the value of a debt
(1) The value of your debt at the time (the forgiveness time ) when it is * forgiven is the amount that would have been its * market value (considered as an asset of the creditor) at the forgiveness time, assuming that:
(a) when you incurred the debt, you were able to pay all your debts (including that one) as and when they fell due; and
(b) your capacity to pay the debt is the same at the forgiveness time as when you incurred it.
(2) However, the value of the debt at the forgiveness time is the sum of the following amounts, if that sum is less than the amount applicable under subsection (1):
(a) what would have been the amount applicable under subsection (1) if there had been no change, from the time the debt was incurred until the forgiveness time, in any rate of interest, or rate of exchange between currencies, that affects the * market value of the debt;
(b) each amount:
(i) that you have deducted or can deduct as a result of the * forgiveness of the debt; and
(ii) that is attributable to such a change.
(3) Paragraph (1)(a) does not apply to the debt if:
(a) either:
(i) the creditor was an Australian resident at the forgiveness time; or
(ii) the * forgiveness of the debt was a * CGT event involving a * CGT asset that was * taxable Australian property; and
(b) you and the creditor were not dealing with each other at * arm's length in respect of you incurring the debt; and
(c) the debt was not a * moneylending debt.
Note: This subsection reduces your gross forgiven amount to reflect the reduction in the creditor's loss on the forgiven debt under the capital gains tax regime.
(4) This section has effect subject to sections 245 - 60 and 245 - 61 (about non - recourse and assigned debts).
245 - 60 Special rule for working out the value of a non - recourse debt
(1) The value of a debt when it is * forgiven is the lesser of:
(a) the amount of the debt outstanding at that time; and
(b) the * market value at that time of the creditor's rights mentioned in paragraph (2)(b).
(2) Subsection (1) applies to a debt if:
(a) you incurred the debt directly in respect of financing:
(i) the acquisition of property by you; or
(ii) the construction or development of property by you;
(but not including the manufacture of goods); and
(b) the creditor's rights against you in the event of default in the payment of the debt or interest were, just before the debt was forgiven, limited to all or any of the following:
(i) rights (including the right to money payable) in relation to all or any of the matters mentioned in subsection (3);
(ii) rights in respect of a mortgage or other security over the property;
(iii) rights arising out of any * arrangement relating to the financial obligations, in relation to the property, of the * end user of the property to you.
(3) For the purposes of subparagraph (2)(b)(i), the matters are as follows:
(a) the property or the use of the property;
(b) goods produced, supplied, carried, transmitted or delivered by means of the property;
(c) services provided by means of the property;
(d) the loss or * disposal of the whole or a part of the property or of your interest in the property.
245 - 61 Special rule for working out the value of a previously assigned debt
If your debt has been assigned as mentioned in section 245 - 36 and is later * forgiven by the new creditor, the value of that debt when it is later forgiven is:
(a) if the debt was not a * moneylending debt and the creditor and the new creditor were not dealing with each other at * arm's length in connection with the assignment--the * market value of the debt at the time of the assignment; or
(b) in any other case--the sum of:
(i) the amount or market value of the consideration (if any) you paid or gave, or are required to pay or give, to the creditor in respect of the assignment; and
(ii) the amount or market value of the consideration (if any) the new creditor paid or gave in respect of the assignment.
Working out if an amount is offset against the value of the debt
245 - 65 Amount offset against amount of debt
(1) The table explains how to work out the amount (if any) that is offset against the value of a debt when it is forgiven (calculated under section 245 - 55, 245 - 60 or 245 - 61) in working out the * gross forgiven amount of the debt.
Amount offset against value of debt | ||
Item | Column 1 In this case: | Column 2 the amount offset is: |
1 | the debt is a * moneylending debt, and neither of items 4 and 6 applies | the sum of: (a) each amount that the debtor has paid; and (b) the * market value, at the time of the * forgiveness, of each item of property (other than money) that the debtor has given; and (c) the market value, at that time, of each obligation of the debtor to pay an amount, or to give such an item of property; as a result of, or in respect of, the forgiveness of the debt. |
2 | the debt is not a * moneylending debt, and none of items 3, 4, 5 and 6 applies | the sum of: (a) each amount that the debtor has paid, or is required to pay; and (b) the * market value, at the time of the * forgiveness, of each item of property (other than money) that the debtor has given, or is required to give; as a result of, or in respect of, the forgiveness of the debt. |
3 | the debt is not a * moneylending debt, the conditions in subsection (2) are met and none of items 4, 5 and 6 applies | the * market value of the debt at the time of the * forgiveness. |
4 | the debt is assigned as mentioned in section 245 - 36, and item 5 does not apply | the sum of: (a) the amount or * market value of the consideration (if any) that the debtor has paid or given, or is required to pay or give, in respect of the assignment; and (b) the amount or market value of the consideration (if any) paid or given by the new creditor in respect of the assignment. |
5 | the debt is assigned as mentioned in section 245 - 36, and: (a) the debt is not a * moneylending debt; and (b) the creditor and the new creditor were not dealing with each other at * arm's length in connection with the assignment | the * market value of the debt at the time of the assignment. |
6 | the debt is * forgiven by subscribing for * shares in a company as mentioned in section 245 - 37 | the amount worked out using the formula in subsection (3). |
(2) The conditions for the purposes of item 3 of the table in subsection (1) are:
(a) at least one of the following is satisfied:
(i) at the time when the debt was * forgiven, the creditor was an Australian resident;
(ii) the forgiveness of the debt was a * CGT event involving a * CGT asset that was * taxable Australian property; and
(b) at least one of the following is satisfied:
(i) there is no amount, and no property, covered by column 2 of item 2 of the table;
(ii) the amount worked out under item 2 of the table is greater or less than the * market value of the debt at the time of the forgiveness and the debtor and creditor did not deal with each other at * arm's length in connection with the forgiveness.
(3) The formula for the purposes of item 6 of the table in subsection (1) is:
where:
"amount applied" means the amount applied by the company as mentioned in section 245 - 37.
"amount subscribed" means the amount subscribed as mentioned in section 245 - 37.
"market value of shares subscribed for" means the * market value of all the shares in the company that were subscribed for as mentioned in section 245 - 37, immediately after those shares were issued.
Working out the gross forgiven amount
245 - 75 Gross forgiven amount of a debt
(1) The gross forgiven amount of a debt is:
(a) if section 245 - 65 does not apply to the debt--the value of the debt when it was * forgiven (worked out under section 245 - 55, 245 - 60 or 245 - 61); or
(b) if the value of the debt when it was forgiven exceeds the amount offset under section 245 - 65 in relation to the debt--the excess.
(2) If the value of the debt when it was * forgiven is equal to or less than the amount offset:
(a) there is no gross forgiven amount in respect of the debt; and
(b) Subdivisions 245 - D to 245 - F (about how to work out the net forgiven amount of a debt and how to treat it) do not apply in respect of the debt.
245 - 77 Gross forgiven amount shared between debtors
If 2 or more entities were liable (except as partners in a partnership) to pay a debt, whether their liability was joint or several, or joint and several, this Subdivision applies as if each entity had a * gross forgiven amount worked out using the formula:
Subdivision 245 - D -- Calculation of net forgiven amount of a debt
245 - 80 What this Subdivision is about
The net forgiven amount of a debt is worked out by subtracting, from the gross forgiven amount of the debt, any amount that this Act already takes into account for the debtor because the debt was forgiven (for example, if some part of the forgiven amount is treated as the debtor's ordinary income).
If the debtor and creditor were companies under common ownership, they may agree to transfer some of the net forgiven amount from the debtor to the creditor. The creditor must apply that amount to reduce the capital loss or deduction it has because of the forgiveness.
Table of sections
Operative provisions
245 - 85 Reduction of gross forgiven amount
245 - 90 Agreement between companies under common ownership for creditor to forgo capital loss or deduction
245 - 85 Reduction of gross forgiven amount
(1) The * gross forgiven amount of your debt is reduced by the sum of the following amounts:
(a) any amount that, under a provision of this Act other than this Division, has been, or will be, included in your assessable income for any income year as a result of the * forgiveness of the debt;
(b) any amount by which, under a provision of this Act other than this Division, an amount you could otherwise have deducted for any income year has been, or will be, reduced as a result of the forgiveness of the debt (except a reduction under Division 727 (about indirect value shifting));
(c) any amount by which the * cost base of any of your * CGT assets has been, or will be, reduced under Part 3 - 1 or 3 - 3 as a result of the forgiveness of the debt.
Note: Paragraph (1)(c) does not cover a reduction under Division 727 (indirect value shifting) because that Division is not in Part 3 - 1 or 3 - 3.
(2) Subject to section 245 - 90, the amount remaining after reducing the * gross forgiven amount under subsection (1) is the net forgiven amount of the debt.
(1) This section applies if:
(a) a debt owed by a company to another company is * forgiven; and
(b) from the time when the debt was incurred until the time when the debt is forgiven, the companies were * under common ownership.
(2) If, apart from this subsection, the creditor would have made a * capital loss as a result of the * forgiveness of the debt:
(a) the debtor and creditor may agree that the creditor is to forgo so much of the loss as is stated in the agreement and does not exceed the amount that would be the net forgiven amount of the debt apart from this section (the provisional net forgiven amount of the debt); and
(b) if such an agreement is made:
(i) the creditor's capital loss is reduced by the agreed amount; and
(ii) the provisional net forgiven amount of the debt is also reduced by the agreed amount; and
(iii) the amount remaining after the reduction of the provisional net forgiven amount of the debt under subparagraph (ii) is the net forgiven amount of the debt.
(3) If, apart from this subsection, the creditor could deduct an amount in respect of the debt under section 8 - 1 (about general deductions) or section 25 - 35 (about bad debts) for the * forgiveness income year:
(a) the debtor and creditor may agree that the creditor is to forgo so much of the deduction as is stated in the agreement and does not exceed the amount that would be the net forgiven amount of the debt apart from this section (the provisional net forgiven amount of the debt); and
(b) if such an agreement is made:
(i) the amount the creditor can deduct is reduced by the agreed amount; and
(ii) the provisional net forgiven amount of the debt is also reduced by the agreed amount; and
(iii) the amount remaining after the reduction of the provisional net forgiven amount of the debt under subparagraph (ii) is the net forgiven amount of the debt.
(4) Neither subsection (2) nor (3) applies in relation to an agreement unless the agreement:
(a) is in writing and signed by the public officer of each company; and
(b) is made before:
(i) the first of those companies lodges its * income tax return for the * forgiveness income year; or
(ii) any later day that the Commissioner determines in writing.
(5) A determination made under subparagraph (4)(b)(ii) is not a legislative instrument.
Subdivision 245 - E -- Application of net forgiven amounts
245 - 95 What this Subdivision is about
The total of the net forgiven amounts of all your debts forgiven in an income year is applied to reduce 4 classes of amounts that could otherwise reduce your taxable income in the same or a later income year. It is applied in the following order:
(a) to your tax losses from previous income years;
(b) to your net capital losses from previous income years;
(c) to the deductions you would otherwise get in the income year, or in a later income year, because of expenditure from a previous year (for example, the capital allowance deductions you would get for expenditure on acquiring a depreciating asset);
(d) to the cost bases of your CGT assets.
You can choose the order in which the net forgiven amounts reduce the amounts within each class.
If all the amounts in the 4 classes are reduced to nil, any remaining net forgiven amounts are disregarded.
Table of sections
General operative provisions
245 - 100 Subdivision not to apply to calculation of attributable income
245 - 105 How total net forgiven amount is applied
Reduction of tax losses
245 - 115 Total net forgiven amount is applied in reduction of tax losses
245 - 120 Allocation of total net forgiven amount in respect of tax losses
Reduction of net capital losses
245 - 130 Remaining total net forgiven amount is applied in reduction of net capital losses
245 - 135 Allocation of remaining total net forgiven amount in respect of net capital losses
Reduction of expenditure
245 - 145 Remaining total net forgiven amount is applied in reduction of expenditure
245 - 150 Allocation of remaining total net forgiven amount in respect of expenditures
245 - 155 How expenditure is reduced--straight line deductions
245 - 157 How expenditure is reduced--diminishing balance deductions
245 - 160 Amount applied in reduction of expenditure included in assessable income in certain circumstances
Reduction of cost bases of assets
245 - 175 Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets
245 - 180 Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets
245 - 185 Relevant cost bases of investments in associated entities are reduced last
245 - 190 Reduction of the relevant cost bases of a CGT asset
Unapplied total net forgiven amount
245 - 195 No further consequences if there is any remaining unapplied total net forgiven amount
245 - 100 Subdivision not to apply to calculation of attributable income
This Subdivision does not apply to the calculation of:
(a) attributable income of a non - resident trust estate within the meaning of section 102AAB of the Income Tax Assessment Act 1936 ; or
(b) * attributable income of a * CFC.
245 - 105 How total net forgiven amount is applied
(1) Your total net forgiven amount for the * forgiveness income year is the total of the * net forgiven amounts of all your debts that are * forgiven in that year.
Note 1: The total net forgiven amount may be reduced under section 707 - 415.
Note 2: The total net forgiven amount of a partner in a partnership is affected by section 245 - 215.
(2) Your * total net forgiven amount is applied, in accordance with sections 245 - 115 to 245 - 195, for the * forgiveness income year.
245 - 115 Total net forgiven amount is applied in reduction of tax losses
The * total net forgiven amount is applied first, to the maximum extent possible, in reduction, in accordance with section 245 - 120, of your * tax losses (if any) for any income years, if the tax losses could, if you had enough assessable income, be deducted in:
(a) the * forgiveness income year; or
(b) a later income year.
245 - 120 Allocation of total net forgiven amount in respect of tax losses
(1) You may choose:
(a) the order in which your * tax losses are reduced; and
(b) the amount applied to reduce each of those losses;
so long as the * total net forgiven amount is applied, to the maximum extent possible, in reduction of those losses.
(2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.
Reduction of net capital losses
245 - 130 Remaining total net forgiven amount is applied in reduction of net capital losses
(1) The * total net forgiven amount (if any) remaining after being applied under section 245 - 115 is applied, to the maximum extent possible, in reduction, in accordance with section 245 - 135, of your * net capital losses (if any) specified in subsection (2).
(2) Those * net capital losses are your net capital losses for income years before the * forgiveness income year that you could apply in working out your * net capital gain for the forgiveness income year if you had enough capital gains.
245 - 135 Allocation of remaining total net forgiven amount in respect of net capital losses
(1) You may choose:
(a) the order in which your * net capital losses are reduced; and
(b) the amount applied in reduction of each of those losses;
so long as the * total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of those losses.
(2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.
245 - 145 Remaining total net forgiven amount is applied in reduction of expenditure
(1) The * total net forgiven amount (if any) remaining after being applied under sections 245 - 115 and 245 - 130 is applied, to the maximum extent possible, in reduction, in accordance with sections 245 - 150, 245 - 155 and 245 - 157, of your expenditure that:
(a) is mentioned in the following table (other than expenditure covered by subsection (2)) and was incurred by you before the * forgiveness income year; and
(b) apart from this Subdivision, could be deducted by you for the forgiveness income year or a later income year if no event or circumstance (other than a * recoupment of the expenditure by you in the forgiveness income year) occurred that would affect its deductibility.
Table of expenditure | ||
Item | Column 1 General description of expenditure | Column 2 Provision under which a deduction is available for the expenditure |
1 | Expenditure deductible under Division 40 (Capital allowances) | Division 40 of this Act |
2 | Expenditure incurred in * borrowing money to produce assessable income | Section 25 - 25 of this Act |
3 | Expenditure on scientific research | Subsection 73A(2) of the Income Tax Assessment Act 1936 |
4 | Expenditure on * research and development activities | Section 73B, 73BA, 73BH, 73QA or 73QB of the Income Tax Assessment Act 1936 |
5 | Advance revenue expenditure | Subdivision H of Division 3 of Part III of the Income Tax Assessment Act 1936 |
6 | Expenditure on acquiring a unit of industrial property to produce assessable income | Subsection 124M(1) of the Income Tax Assessment Act 1936 |
7 | Expenditure on Australian films | Section 124ZAFA of the Income Tax Assessment Act 1936 |
8 | Expenditure on assessable income - producing buildings and other capital works | Section 43 - 10 of this Act |
Note: If the asset to which the expenditure relates was disposed of, lost or destroyed before 28 June 1996 or the expenditure was recouped before 28 June 1996, see section 245 - 10 of the Income Tax (Transitional Provisions) Act 1997 .
(2) Expenditure is covered by this subsection if:
(a) it was incurred in respect of an asset you * disposed of to an entity that you dealt with at * arm's length in respect of the disposal; and
(b) the disposal occurred during the * forgiveness income year before the * forgiveness of any debt owed by you, and the forgiveness resulted in a * net forgiven amount; and
(c) no provision of this Act includes an amount in your assessable income, or allows you a deduction, as a result of the disposal.
245 - 150 Allocation of remaining total net forgiven amount in respect of expenditures
(1) You may choose:
(a) the order in which your expenditures are reduced; and
(b) the amount applied in reduction of each of those expenditures;
so long as that the * total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of your expenditures.
(2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.
245 - 155 How expenditure is reduced--straight line deductions
(1) This section applies in respect of the reduction under section 245 - 145 of an expenditure of yours, if:
(a) the amount that you could deduct, apart from this Subdivision, in respect of the expenditure is a percentage, fraction or proportion of an amount (the base amount ); and
(b) the base amount is worked out without regard to any amount or amounts you previously deducted in respect of that expenditure.
(2) The amount of the reduction of the expenditure must not exceed:
(a) the base amount; less
(b) the amount of that part of the expenditure in respect of which you have deducted (disregarding subsection (4)), or can deduct, an amount for any income year before the * forgiveness income year.
(3) For the purpose of working out your deductions for the * forgiveness income year and later income years, any amount that is applied in reduction of your expenditure is taken to reduce the base amount.
(4) You are taken to have deducted the amount of the reduction in respect of the expenditure:
(a) before the * forgiveness income year; and
(b) for the purposes of any provision of this Act that includes an amount in your assessable income or allows you a deduction:
(i) because of the * disposal, loss or destruction of the asset in respect of which the expenditure was incurred; or
(ii) because of the * recoupment of any of the expenditure; or
(iii) because use of the asset for a particular purpose has been otherwise terminated; or
(iv) because a * balancing adjustment event occurs for that asset.
(5) The amount of that part of the expenditure in respect of which you have deducted (disregarding subsection (4), or can deduct, an amount for all income years (including income years before the * forgiveness income year) must not exceed the base amount as reduced under subsection (3).
245 - 157 How expenditure is reduced--diminishing balance deductions
Any amount applied in reduction under section 245 - 145 of an expenditure of yours is taken to have been deducted by you in respect of the expenditure before the * forgiveness income year, if the amount you could deduct, apart from this Subdivision, in respect of the expenditure is a percentage, fraction or proportion of an amount that is worked out after taking into account any amount previously deducted by you in respect of the expenditure.
If:
(a) after the * forgiveness income year you * recoup an amount of expenditure that is subject to reduction under section 245 - 145; and
(b) as a result of the recoupment, this Act applies to disallow any amount you have deducted in respect of the expenditure;
an amount equal to the amount, or the sum of the amounts, applied under this Subdivision in reduction of the expenditure is included in your assessable income in the income year in which the expenditure is recouped.
Reduction of cost bases of assets
245 - 175 Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets
(1) The * total net forgiven amount (if any) remaining after being applied under sections 245 - 115, 245 - 130 and 245 - 145 is applied, to the maximum extent possible, in reduction, in accordance with sections 245 - 180 to 245 - 190, of the * cost base and * reduced cost base of your * CGT assets.
(2) Subsection (1) does not apply to the following * CGT assets:
(a) a * pre - CGT asset;
(b) a CGT asset you * acquire after the start of the * forgiveness income year;
(c) a * personal use asset;
(d) a * dwelling that was your main residence at any time before the forgiveness income year;
(e) goodwill;
(f) a right of yours covered by section 118 - 305 (which exempts from CGT certain rights relating to a superannuation fund or approved deposit fund);
(g) a CGT asset that, throughout the period before the forgiveness income year when it was owned by you, was your * trading stock;
(h) a CGT asset if:
(i) expenditure by you (of a kind which is subject to reduction under section 245 - 145) relates to the asset; and
(ii) a * CGT event in relation to the asset would result in an amount being included in your assessable income, or in you being able to deduct an amount;
(i) if you are a foreign resident at the beginning of the forgiveness income year--an asset of yours that is not * taxable Australian property.
245 - 180 Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets
(1) Subject to section 245 - 185, you may choose:
(a) your * CGT assets whose * cost base and * reduced cost base are subject to reduction under section 245 - 175; and
(b) the amount applied in reduction of the cost base and reduced cost base of each of those assets;
so long as the * total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of the cost base and reduced cost base of such assets.
(2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.
245 - 185 Relevant cost bases of investments in associated entities are reduced last
If your * CGT assets that are subject to reduction under section 245 - 175 include investments in, or in relation to, an * associate of yours (including * membership interests, or * debt interests, in your associate), the:
(a) * cost base; and
(b) * reduced cost base;
of those assets are not subject to reduction under section 245 - 175 until the * total net forgiven amount (if any) remaining has been applied, to the maximum extent possible, in reduction of the cost bases of your other CGT assets.
245 - 190 Reduction of the relevant cost bases of a CGT asset
(1) Subject to subsection (3), if you choose to apply an amount in reduction of the * cost base and * reduced cost base of a particular * CGT asset, the cost base and reduced cost base of the asset, as at any time on or after the beginning of the * forgiveness income year, are reduced by that amount.
(2) The reduction by a particular amount of the * cost base and * reduced cost base of a particular * CGT asset is, for the purpose of working out the amount by which the * total net forgiven amount remaining is applied, taken to be a reduction by the particular amount (and not by the sum of the amounts by which those cost bases are reduced).
(3) The maximum amount by which the * cost base and * reduced cost base of a * CGT asset may be reduced is the amount that, apart from sections 245 - 175 to 245 - 185, would be the reduced cost base of the asset calculated as if a * CGT event had happened to the asset:
(a) subject to paragraph (b), on the first day of the * forgiveness income year; or
(b) if, after the beginning of that income year, an event occurred that would cause the reduced cost base of the asset to be reduced--on the day on which the event occurred;
and the asset had been * disposed of at its * market value on the day concerned.
Unapplied total net forgiven amount
245 - 195 No further consequences if there is any remaining unapplied total net forgiven amount
(1) If any part of the * total net forgiven amount remains after the application of that amount in making reductions under the preceding provisions of this Subdivision, the remaining part is disregarded.
(2) This section has effect subject to section 245 - 215 (about partnerships and transferring the remaining part to the partners).
Subdivision 245 - F -- Special rules relating to partnerships
245 - 200 What this Subdivision is about
Any part of a partnership's total net forgiven amount left over after applying it under Subdivision 245 - E is divided between the partners. Each partner treats the partner's share as a net forgiven amount the partner has for the income year.
Table of sections
Operative provisions
245 - 215 Unapplied total net forgiven amount of a partnership is transferred to partners
245 - 215 Unapplied total net forgiven amount of a partnership is transferred to partners
(1) This section applies if any part (the residual amount ) of the * total net forgiven amount in relation to a partnership in respect of the * forgiveness income year remains after the total net forgiven amount has been applied in accordance with Subdivision 245 - E.
(2) If there is a * net income in relation to the partnership in respect of the * forgiveness income year:
(a) each partner is taken to have had a debt * forgiven during the forgiveness income year; and
(b) there is taken to be, in respect of the debt of each partner, a * net forgiven amount worked out in accordance with the following formula:
where:
partner's share of net income means the part of the net income of the partnership for the forgiveness income year that is included in the partner's assessable income.
(3) If there is a * partnership loss in relation to the partnership in respect of the * forgiveness income year:
(a) each partner is taken to have had a debt * forgiven during the forgiveness income year; and
(b) there is taken to be, in respect of the debt of each partner, a * net forgiven amount worked out in accordance with the following formula:
where:
partner's share of partnership loss means the part of the partnership loss that the partner has deducted or can deduct.
(4) The * total net forgiven amount of a partner for the * forgiveness income year as worked out under subsection 245 - 105(1) includes the * net forgiven amount worked out in relation to the partner under this section.
(5) This section has effect in relation to a partnership irrespective of any agreement between the partners as to the operation of this section.
Subdivision 245 - G -- Record keeping
245 - 265 Keeping and retaining records
(1) If you incur a debt, you must keep any records that are necessary to enable the following matters to be readily found out:
(a) the date on which you incurred the debt;
(b) the identity of the creditor;
(c) the amount of the debt;
(d) the terms of repayment of the debt;
(e) if the debt is not a * moneylending debt and you and the creditor were not dealing with each other at * arm's length in respect of the incurring of the debt--your capacity at the time when the debt was incurred to pay the debt when it falls due;
(f) if your debt is * forgiven--the date of the forgiveness and the amount offset under section 245 - 65 (if any) in respect of the debt.
Note: There is an administrative penalty if you do not keep or retain records as required by this section: see section 288 - 25 in Schedule 1 to the Taxation Administration Act 1953 .
(2) If a company and another company that are * under common ownership cease to be under common ownership, each company must keep any records that are necessary to enable the following matters to be readily found out:
(a) the date on which the companies ceased to be under common ownership;
(b) the identity of each entity that was a * controller (for CGT purposes) of the company immediately before the companies ceased to be under common ownership;
(c) the identity of each entity that was a controller (for CGT purposes) of the company immediately after the companies ceased to be under common ownership.
(3) You must keep the records required by subsection (1) or (2) in writing in the English language or so as to enable them to be readily accessible and convertible into writing in the English language.
(4) Subject to subsection (5), you must keep the records required by subsection (1) until:
(a) if paragraph (b) does not apply--the end of 5 years after the debt was * forgiven; or
(b) if the period within which the Commissioner may, under section 170 of the Income Tax Assessment Act 1936 , amend your assessment for the income year to which the records relate, or in which a transaction or act to which the records relate was completed, is extended under subsection 170(7) of that Act--the later of:
(i) the end of the assessment period as so extended; and
(ii) the end of the period of 5 years mentioned in paragraph (a).
(5) Subsection (4) does not require you to keep records after the debt is paid.
(6) Subject to subsection (7), each company that keeps any records required by subsection (2) must retain the records until the end of the second income year after the income year in which the companies ceased to be * under common ownership.
(7) If a debt of one of the companies mentioned in subsection (2) was * forgiven at any time after the companies ceased to be * under common ownership and before the end of the second income year after the income year in which the cessation occurred, each company that keeps records required by that subsection must retain the records until the time specified in subsection (4).
(8) You commit an offence if you fail to comply with a provision of this section.
Penalty: 30 penalty units.
(9) An offence against subsection (8) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code .
(10) This section does not limit the application of any other provision of this Act relating to the keeping or retention of records.
3 Subsection 995 - 1(1)
Insert:
"forgive" a debt has the meaning given by sections 245 - 35, 245 - 36 and 245 - 37.
Note: Subdivisions 245 - C to 245 - G (about forgiveness of commercial debts) apply to certain arrangements as if the arrangements were forgiveness of debts: see section 245 - 45.
4 Subsection 995 - 1(1)
Insert:
"forgiveness income year" , in relation to a debt that is * forgiven, means the income year in which the debt is forgiven.
5 Subsection 995 - 1(1)
Insert:
"gross forgiven amount" has the meaning given by section 245 - 75.
6 Subsection 995 - 1(1)
Insert:
"moneylending debt" means a debt resulting from a loan of money in the ordinary course of a * business of lending money carried on by the creditor.
7 Subsection 995 - 1(1)
Insert:
"net forgiven amount" , of a debt, has the meaning given by sections 245 - 85 and 245 - 90.
8 Subsection 995 - 1(1)
Insert:
"total net forgiven amount" has the meaning given by subsection 245 - 105(1).
Income Tax (Transitional Provisions) Act 1997
9 Before Division 247
Insert:
Division 245 -- Forgiveness of commercial debts
Table of Subdivisions
245 - A Application of Division 245 of the Income Tax Assessment Act 1997
Subdivision 245 - A -- Application of Division 245 of the Income Tax Assessment Act 1997
Table of sections
245 - 5 Application and saving
245 - 10 Pre - 28 June 1996 arrangements etc.
245 - 5 Application and saving
(1) Division 245 of the Income Tax Assessment Act 1997 applies to debts forgiven in:
(a) the 2010 - 11 income year; and
(b) later income years.
(2) Despite the repeal of Schedule 2C to the Income Tax Assessment Act 1936, that Schedule continues to apply to debts forgiven in:
(a) the 2009 - 10 income year; and
(b) earlier income years.
(3) Subsection (2) does not limit the effect of section 8 of the Acts Interpretation Act 1901 in relation to the repeal.
245 - 10 Pre - 28 June 1996 arrangements etc.
(1) Subdivisions 245 - C to 245 - G of the Income Tax Assessment Act 1997 do not apply to a forgiveness of a debt if the forgiveness occurs in accordance with the terms of an arrangement that:
(a) was entered into on or before 27 June 1996; and
(b) is evidenced in writing otherwise than by a document evidencing the arrangement or transaction under which the debt arose.
(2) Those Subdivisions also do not apply to reduce your expenditure:
(a) if the asset in respect of which the expenditure was incurred was disposed of by you, or was lost or destroyed, on or before 27 June 1996; or
(b) to the extent (if any) to
which the expenditure was recouped by you on or before 27 June 1996.
Part 2 -- Consequential amendments
Income Tax Assessment Act 1936
10 Subsections 73A(1A) and 82KZM(2)
Omit "Schedule 2C", substitute "the Income Tax Assessment Act 1997 ".
11 Paragraph 82KZMA(6)(b)
Omit "Schedule 2C to this Act", substitute "that Act".
12 Paragraph 82KZMF(2)(b)
Omit "Schedule 2C to this Act", substitute "the Income Tax Assessment Act 1997 ".
13 Subsection 109F(3)
Omit "(except subsection 245 - 35(4)) of Schedule 2C, assuming the amount were a commercial debt for the purposes of Division 245 of that Schedule", substitute "or 245 - 37 of the Income Tax Assessment Act 1997 , assuming the amount were a debt to which Subdivisions 245 - C to 245 - G of that Act apply".
14 Subsection 109F(3) (note)
Omit "of Schedule 2C", substitute "of the Income Tax Assessment Act 1997 ".
15 Subsection 109F(8) (example)
Omit "subsection 245 - 35(2) of Schedule 2C", substitute "paragraph 245 - 35(b) of the Income Tax Assessment Act 1997 ".
Income Tax Assessment Act 1997
17 Section 12 - 5 (table item headed "bad debts")
Omit " 245 - 90 of Schedule 2C ", substitute "245 - 90".
18 Subsection 25 - 25(1) (note)
Omit "of Schedule 2C to the Income Tax Assessment Act 1936 ".
19 Subsection 25 - 35(5) (cell at table item 3, column headed "See:")
Repeal the cell, substitute:
section 245 - 90 |
20 Subsections 36 - 15(7) and 36 - 17(9) (note)
Omit "of Schedule 2C to the Income Tax Assessment Act 1936 ".
21 Subsection 40 - 90(1)
Omit "deductible".
22 Subsection 40 - 90(1)
Omit "(within the meaning of Division 245 of Schedule 2C to the Income Tax Assessment Act 1936 ) under section 245 - 155 of that Schedule", substitute "under section 245 - 155 or 245 - 157".
23 Subsection 40 - 645(3) (note 1)
Omit "of this Act" (first and second occurring).
24 Subsection 40 - 645(3) (note 1)
Omit "of Schedule 2C to the Income Tax Assessment Act 1936 ".
25 Subsection 43 - 50(7)
Omit "of Schedule 2C to the Income Tax Assessment Act 1936 ".
26 Section 102 - 30 (table item 3)
Omit "of Schedule 2C to the Income Tax Assessment Act 1936 ".
27 Subsection 104 - 25(5) (note 2)
Omit "of Schedule 2C to the Income Tax Assessment Act 1936 ".
28 Section 112 - 97 (table item 19)
Omit "CGT assets of the debtor (except assets that are excluded assets under Schedule 2C)", substitute "certain CGT assets of the debtor".
29 Section 112 - 97 (cell at table item 19, column headed "See:")
Repeal the cell, substitute:
sections 245 - 175 to 245 - 190 |
30 Paragraph 165 - 115ZA(2)(b)
Omit "section 245 - 10 in Schedule 2C to the Income Tax Assessment Act 1936 (which relates", substitute "Subdivisions 245 - C to 245 - G (which relate".
31 Paragraph 204 - 30(2)(c)
Omit "forgiving", substitute " * forgiving".
32 Section 230 - 470
Omit "forgiveness of a debt (as defined in Subdivision 245 - B of Schedule 2C to the Income Tax Assessment Act 1936 )", substitute " * forgiveness of a debt to which Subdivisions 245 - C to 245 - G apply".
33 Paragraphs 230 - 470(a) and (b)
Repeal the paragraphs, substitute:
(a) if section 245 - 90 (about agreements to forgo capital losses or deductions) applies--the debt's provisional net forgiven amount mentioned in that section; or
(b) if that section does not apply--the debt's * net forgiven amount.
34 Paragraphs 230 - 515(2)(e) and (f)
Repeal the paragraphs, substitute:
(e) item 3 of the table in subsection 245 - 65(1) of this Act;
(f) section 775 - 40 of this Act.
35 Subsection 243 - 75(1)
Omit "Schedule 2C to the Income Tax Assessment Act 1936 ", substitute "Division 245".
36 Paragraph 243 - 75(2)(a)
Omit "that Schedule", substitute "Division 245".
37 Paragraph 243 - 75(2)(b)
Omit "of that Schedule".
38 Subsection 707 - 140(3)
Omit "forgiven (as defined in Subdivision 245 - B in Schedule 2C to the Income Tax Assessment Act 1936 )", substitute " * forgiven".
39 Subsection 707 - 140(3)
Omit "subsections 245 - 105(5) and (6) in that Schedule", substitute "sections 245 - 115 and 245 - 130".
40 Subsection 707 - 415(2) (table item 1)
Repeal the item, substitute:
1 | (a) the joining entity owed a debt just before the joining time to an entity that was not a * member of the group at the joining time; and (b) the loss is wholly or partly attributable to the debt; and (c) Subdivision 245 - E (about applying the total net forgiven amount to reduce other amounts) applies in relation to the debt (or another debt that is reasonably connected to the debt) because the debt is * forgiven after the joining time | the * total net forgiven amount | applying that total net forgiven amount in accordance with sections 245 - 115, 245 - 130, 245 - 145 and 245 - 175 |
41 Subsection 707 - 415(4)
Omit "gross forgiven amount (within the meaning of section 245 - 75 in Schedule 2C to the Income Tax Assessment Act 1936 )", substitute " * gross forgiven amount".
42 Subsection 995 - 1(1) (note at the end of the definition of company )
After "Note", insert "1".
43 Subsection 995 - 1(1) (at the end of the definition of company )
Add:
Note 2: A reference to a company includes a reference to a corporate limited partnership: see section 94J of the Income Tax Assessment Act 1936 .
44 Subsection 995 - 1(1) (note at the end of the definition of partnership )
After "Note", insert "1".
45 Subsection 995 - 1(1) (at the end of the definition of partnership )
Add:
Note 2: A reference to a partnership does not include a reference to a corporate limited partnership: see section 94K of the Income Tax Assessment Act 1936 .
