House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Hon Peter Costello, MP)

Chapter 6 - Forgiveness of commercial debts

Overview

6.1 Part 1 of Schedule 2 of the Bill will insert a new Schedule 2C into the Income Tax Assessment Act 1936 (the Act) to provide that amounts of commercial debt that are forgiven will be applied, in order, to reduce the debtor's prior revenue losses, prior net capital losses, undeducted balances of deductible expenditure and cost bases of capital assets. The new Schedule is inserted in a way to fit within the proposed new structure of the Act. The date referred to in subclause 2(3) of the Bill relating to the commencement of the new Schedule, is the date of introduction of the Bill in the Parliament. That date is referred throughout the new Schedule 2C as the 'commencement day', as defined in subsection 245-245(1) .

Summary of the amendments

Purpose of the amendments

6.2 The amendments will ensure that there are appropriate taxation outcomes when a commercial debt is forgiven. The present law contains no specific rules relating to debt forgiveness, with the result that, in general, there are no taxation consequences to the debtor while the creditor usually is entitled to a tax deduction or capital loss for the amount of debt forgiven. The amendments will not treat the debtor as having received a taxable gain, but will apply the forgiven amount in reduction of certain amounts otherwise taken into account in calculating the debtor's taxable income.

Date of effect

6.3 The provisions apply to commercial debts forgiven after the commencement day which is the date this Bill was introduced in the Parliament. However, if after that day, a debt is forgiven in accordance with the terms of a previous agreement or arrangement, the provisions will not apply. For example, a debt may be forgiven after the debtor has complied with an obligation under an agreement with the creditor to pay, say, 10% of monthly sales revenue to the creditor for 12 months in exchange for the balance of the debt being forgiven at the end of the 12 month period. The provisions would not apply to the forgiveness of the debt if the agreement was entered into on or before the commencement day. [Paragraph 245-10(2)(a)]

6.4 For the transitional rule to apply, the agreement or arrangement must be written in a document other than a document under which the debt arose. For example, the transitional rule would not apply to a post-commencement day forgiveness of a non-recourse debt incurred on or before the commencement day on the basis that the terms of the debt agreement provided for the forgiveness of the debt if, say, the value of the property to which the creditor had recourse fell below the amount owing on the debt. [Paragraph 245-10(2)(b)]

Background to the legislation

6.5 There are no provisions in the present income tax law that deal effectively with debt forgiveness transactions. When a debt is forgiven, the debtor benefits through being relieved of the economic burden of having to repay the debt. If the forgiveness occurs because of the debtor's inability to pay, the debtor's loss of assets that once represented funds provided by the creditor is effectively taken over and borne by the creditor.

6.6 While, appropriately, the creditor generally is entitled to a tax deduction or capital loss in respect of the forgiven debt, the debtor does not lose any entitlement to deductions in respect of revenue and capital losses, or other undeducted expenditures that accumulated up to the time the debt was forgiven. Therefore, the revenue suffers because both debtor and creditor are allowed deductions in respect of broadly the same losses, notwithstanding the relief afforded to the debtor by the forgiveness.

6.7 To redress this imbalance, the amendments will require that net amounts of debts forgiven in a year of income be applied, first, to reduce deductible revenue losses of the debtor that otherwise could be claimed as a deduction in the forgiveness year or a later year of income. Any balance will then be applied, in order, against net capital losses incurred in respect of the year before the forgiveness year, undeducted revenue or capital expenditure (eg., on prospecting and mining for petroleum) that would otherwise be deductible in the forgiveness year or a later year and, finally, the cost bases of assets of the debtor at the beginning of the forgiveness year.

Explanation of the amendments

Index to the explanation of the amendments

Exclusions

6.8 The commercial debt forgiveness provisions do not apply if the forgiveness of a debt is effected:

(a)

under a bankruptcy law;

(b)

by a person's will;

(c)

for reasons of natural love and affection.

[Section 245-40]

6.9 In addition, if the waiver of a debt constitutes a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 , the debt is to be disregarded for the purposes of the commercial debt forgiveness provisions. [Subsection 245-15(2)]

6.10 An amount of debt that has been or will be included in the debtor's assessable income of any year of income is also to be disregarded [subsection 245-15(3)] . For example, paragraph 108(1)(a) of the Act may treat an advance or a loan to a private company shareholder as a dividend to be included in the shareholder's assessable income under section 44. Such an advance or loan would not be treated as a debt for the purposes of the debt forgiveness provisions.

Forgiveness of a commercial debt

6.11 For the debt forgiveness provisions to apply, there must be forgiveness of a commercial debt. [Subsection 245-10(1)]

Debt

6.12 For this purpose debt is defined in subsection 245-15(1) to cover a legally enforceable obligation on a person (ie., the debtor) to pay an amount to another person (ie., the creditor). Accrued but unpaid interest on a debt is treated as part of the debt rather than itself being a separate debt [section 245-20] .

Commercial debt

6.13 A debt is a commercial debt for purposes of the debt forgiveness provisions if the whole or any part of the interest payable on the debt is or would be an allowable deduction to the debtor [paragraph 245-25(2)(a)] . That test could be satisfied at any time over the term of the debt.

6.14 A debt will be a commercial debt under that test notwithstanding that a specific provision of the Act would have the effect of precluding a deduction for the interest [paragraph 245-25(2)(b)] . For example, section 51AD has the effect of preventing deductions in respect of certain property financed by non-recourse debt. A debt the interest on which is not deductible because of section 51AD nevertheless will be a commercial debt because, apart from the operation of section 51AD, the interest would qualify for deduction under section 51 as an outgoing incurred in gaining or producing assessable income. Another example of such an exception provision is section 51AAA. However, subsection 51(1) is not to be treated as an exception provision. Accordingly, a debt the interest on which is denied deduction by the application of subsection 51(1), ie. because it is of a private, capital or domestic nature, or is incurred in relation to exempt income, could not on that account be 'converted' to a commercial debt.

6.15 The fact that interest is not payable on a debt does not prevent the debt being a commercial debt. To that end, a debt will be a commercial debt if interest on the debt - had it been charged - would have been an allowable deduction to the debtor. [Subsection 245-25(3)]

6.16 Some debts may not be capable of bearing interest. For example, the 'discount' on a bill of exchange technically is not interest. As for interest, such debts will be commercial debts if amounts which have the character of interest are or would be an allowable deduction to the debtor. [Subsection 245-25(3)]

6.17 Certain shares are to be treated as commercial debt owed by the company to the shareholder. They are shares the dividends on which are taken to be 'debt dividends' in accordance with section 46C or 46D of the Act [subsection 245-25(4)] . Those sections operate to deny a tax rebate for inter corporate dividends under section 46 or 46A if the dividends in question are paid instead of interest under finance arrangements.

Trustees of trust estates

6.18 When a trust estate's debt is forgiven, the debt forgiveness provisions apply to a trustee in its capacity as trustee of the trust estate. [Section 245-26]

Forgiveness

6.19 A debt is forgiven if the debtor's obligation to pay the debt is released or waived or otherwise extinguished [subsection 245-35(1)] ,except where the whole of the debt is paid in cash. 'Extinguished' is defined in subsection 245-245(1) to exclude debts fully paid in cash. It is important to bear in mind that a reference to a debt includes part of a debt [subsection 245-245(1)] . That enables the provisions to apply if only part of a person's debt is forgiven. What constitutes the forgiven debt is determined under section 245-50 , as explained in the section on how to calculate the gross forgiven amount .

6.20 When a creditor loses its right to sue the debtor for the recovery of a debt due to the operation of a statute of limitations, the debt will be treated as forgiven at that time. [Subsection 245-35(2)]

In substance forgiveness

6.21 Debts will be taken to be forgiven where a debtor is effectively released from the obligation to pay the debt notwithstanding the existence of arrangements which imply that the debt remains on foot.

6.22 Under some arrangements, the debtor's obligation to pay the debt may not cease immediately but at some future time. Nevertheless, the debt will be treated as forgiven immediately if the debtor and creditor are not acting at arm's length and they agree either that the debtor will not have to pay any consideration for the concession granted by the creditor or merely a token amount. [Subsection 245-35(3)]

6.23 A debt which is treated as forgiven because of such an arrangement would not be subject to the debt forgiveness provisions again when the debt is actually forgiven. To have the provisions apply upon actual forgiveness would result in double taxing of the debtor on the same debt. [Subsection 245-35(3)]

Example:

6.24 G owes H $100,000, but cannot pay the full amount of the debt. H agrees to release G from this debt in return for an immediate payment of $1,000 and an additional payment of $1 in 5 years time. Arguably, G's debt to H will exist until G pays this additional $1, as until then G has a further obligation to meet before H becomes obliged to release the debt. However, this further obligation would generally be regarded as of a nominal kind having regard to:

•

the amount of the debt;

•

the amount of the payment; and

•

the likelihood of the obligation being met.

Debt parking

6.25 In relation to some debts, the creditor may assign its rights under a debt to a third party without the debtor's obligations under the debt being forgiven. It is possible for the debtor to be effectively released from its debt where, because of a relationship between the debtor and the assignee, the assignee would not seek to recover the debt. When this 'debt parking' type of arrangement occurs, the debt forgiveness provisions apply as if the debtor had been forgiven instead of being assigned [paragraphs 245-35(4)(d) and (e)]. Subsection 245-65(3) (discussed later) explains how the consideration in respect of the forgiveness of such a notional debt is to be worked out for the purposes of calculating the net forgiven amount.

6.26 In order for the provisions to apply in this manner, the relevant conditions are that the person to whom a creditor assigns a debt must either be:

•

an associate of the debtor; or

•

a party to an agreement or arrangement with the debtor in relation to the assignment.

[Paragraphs 245-35(4)(a) and (b)]

6.27 They will not apply, however, if the new creditor acquired the rights under the debt in the ordinary course of trading on a securities market . [Paragraph 245-35(4)(c)]

6.28 Section 245-61 (discussed later) explains how to calculate the notional value of a 'parked' debt for the purposes of working out any forgiven amount if the new creditor were to forgive the debt.

In-substance debt for equity swap

6.29 Another circumstance of debt forgiveness is a form of debt/equity swap. Under existing section 63E of the Act, a debt/equity swap occurs where a creditor releases a debt or part of a debt in return for the issue of shares or units in the debtor. The release of the debt or part of the debt would constitute forgiveness in terms of the basic rule in subsection 245-35(1) .

6.30 The form of debt/equity swap covered by subsection 245-35(5) occurs where the creditor acquires shares in a debtor company so that the money paid to acquire the shares can be used by the debtor to discharge the debt, or part of it. On its face, the payment by the debtor appears to be nothing more than a payment of the debt owing. However, subsection 245-35(5) will treat the debt as being forgiven to the extent it is paid out by this means, and the forgiveness to have occurred when the money the creditor used to pay for the shares is applied to pay off the debt. As explained later in these notes, subsection 245-65(4) treats the money so used by the debtor as consideration for the debt forgiven.

Gross forgiven amount calculation

6.31 Subdivision 245-C sets out how to calculate the gross forgiven amount of a debt. That gross amount will be reduced (if required) by the amounts specified in Subdivision 245-D to arrive at the net forgiven amount of a debt.

6.32 The starting point in calculating the gross forgiven amount is to determine what constitutes the forgiven debt. Ordinarily, it is simply the debt or part of the debt which the creditor releases or waives or is otherwise taken to be forgiven by the operation of section 245-35 . If consideration is given for the forgiveness, the amount of the forgiven debt is the part of the debt no longer payable and the part of the debt extinguished by the consideration. [Section 245-50]

Example:

6.33 If A owes B $1,000 and, in consideration of A paying $100, B agrees to waive the balance of the debt, the forgiven debt is to be taken as $1,000, ie., the proportion of the debt expressed to be forgiven ($900) plus the proportion of the debt extinguished by the consideration ($100).

6.34 The gross forgiven amount of a debt is its notional value less any amount of consideration in respect of the forgiveness of the debt. [Section 245-75]

Notional value of the debt

6.35 The basic rule is that the notional value of a debt is the amount that would be the value of the debt on forgiveness if the debtor's capacity to pay the debt on termination was the same as it was at the time when the debt was initially incurred [subsection 245-55(2)] , on an assumption that the debtor was solvent when the debt was incurred. This is called the first applicable amount .

6.36 The assumption contained in the basic rule of the debtor's initial solvency would affect a case where, notwithstanding that parties to a debt arrangement are at arm's length, a debt has arisen in circumstances where the debtor may not have been solvent at that time. For example, a bank may have lent money to a company in the belief that it was solvent when it was not.

6.37 The assumption will prevent a debtor being able to put only a nominal value on the debt, on the basis that it was close to worthless at the time it was incurred because the debtor was then insolvent. Thus, there will be a requirement to value the debt as if the debtor was solvent at the time it was incurred and that its capacity to pay at the time it was forgiven is the same as when it was incurred. The value of the debt will therefore be determined by reference to its arm's length terms.

6.38 The assumption of initial debtor solvency does not apply where the debtor and creditor were not dealing with each other at arm's length in relation to the debt and the debt is not a moneylending debt [subsection 245-55(4)] . The reason is that, in such circumstances, relevant capital gains rules (subsection 160ZH(9)) would treat the creditor as having given market value consideration for the debt when it was acquired as an asset by the creditor. If the creditor forgives a non-arm's length debt of nominal value and is (by subsection 160ZH(9)) thereby denied entitlement to a substantial capital loss, it is appropriate to treat the debtor as having been forgiven a debt of the same nominal value. (A moneylending debt is defined in section 245-245 . It is one which results from a loan made by the creditor in the ordinary course of a business of money lending.)

Eliminating market variables

6.39 If part of a debt forgiveness is attributable to changes in the value of the debt due to market variables, that part is not to be taken into account in applying commercial debt forgiveness provisions. For this purpose, 'market variables' are changes in interest rates and exchange rates that affect the value of the debt. [Subsection 245-55(5)]

6.40 If the value of the debt has increased due to market variables, the actual amount forgiven will contain a component that is attributable to those variables. In effect, part of the debt forgiven will constitute a notional market loss of the debtor, eg where a loan taken out in foreign currency has increased in Australian dollar terms because of unfavourable exchange movements. It would be inappropriate to include that component in the gross forgiven amount unless the debtor were entitled to a tax deduction in respect of that loss.

6.41 To eliminate the effects of market gains, and to ensure that non-deductible notional market losses of the debtor do not inflate the amount of debt forgiven, the value of the debt calculated under the basic rule contained in subsection 245-55(2) is compared to what the value of the debt (measured by the same rule) would be if there had been no changes in market variables since the debt was incurred, plus any amounts allowable as deductions to the debtor on the forgiveness of the debt which constitute losses due to market movements. This market-adjusted value is called the second applicable amount . [Subsection 245-55(3)]

6.42 The lesser of the first applicable amount and the second applicable amount is the notional value of the debt forgiven. [Subsection 245-55(1)]

Example:

6.43 X Ltd borrows USD 100. One year later, this debt is forgiven for no consideration, as X Ltd is unable to repay the amount. The exchange rates are:

6.44 On the assumptions expressed in subsection 245-55(2) , the value of the debt on forgiveness would be AUD 140 - the first applicable amount in respect of the debt.

6.45 However, on the assumption expressed in subparagraph 245-55(3)(a)(iii) of no change in market variables over the debt's term, its value on forgiveness would be AUD 130 - the second applicable amount in respect of the debt.

6.46 The difference between the two amounts reflects the increase in value of the debt over its term due to the movement in exchange rates. In this instance, because the second applicable amount is lower, it will be taken as the notional value of the debt.

Non recourse debt

6.47 Special rules apply in working out the notional value of non-recourse debt.

6.48 Subsection 245-60(1) defines non-recourse debt for this purpose. It is a two part test:

(i)

the debt must have been incurred directly in respect of financing the cost of the debtor's acquisition, construction or development of property; and

(ii)

the creditor's rights as against the debtor in the event of default in the payment of principal or interest are limited to the property itself or rights in relation to the property such as goods or services produced by the property, security over the property, etc.

6.49 A debt incurred in financing the cost of manufacturing goods would not qualify under subsection 245-60(1) as a non-recourse debt.

6.50 An obligation to pay an amount to the creditor may be non-recourse in a particular way. For example, the creditor's rights in the event of default in the payment of principal may be limited as described above, but the creditor may have full recourse against the debtor for the payment of interest. These rules apply to the non-recourse component of such a debt. The other component is valued under the ordinary rules for debt discussed above.

6.51 The notional value of a non-recourse debt is the lesser of:

(a)

the amount of the debt on forgiveness; and

(b)

the market value at that time of the rights of the creditor in respect of the property to which it has recourse.

[Subsection 245-60(2)]

Debt previously 'parked''

6.52 Section 245-61 contains a special rule for working out the notional value of a debt that was assigned under conditions mentioned in paragraphs 245-35(4)(a) to (c) . The rule prevents double taxation. That could happen if, on forgiveness of the assigned debt, the net forgiven amount when added to the net forgiven amount of the notional debt calculated under paragraph 245-35(4)(e) exceeded what would otherwise be the notional value of the assigned debt.

6.53 Accordingly, the notional value of the assigned debt is equal to the consideration which, under subsection 245-65(3) , has been taken into account in working out the net forgiven amount of the notional debt. [The notional value of any interest that accrued on the assigned debt after the assignment would be determined under the ordinary valuation rules contained in section 245-55 .]

6.54 If the assigned debt was not a moneylending debt, and the creditor and the new creditor were not dealing at arm's length in connection with the assignment, the notional value of the assigned debt is the market value of the debt at the time of the assignment. [Paragraph 245-61(a)]

6.55 In other cases, the notional value of the assigned debt is the sum of any consideration the debtor has paid or given the creditor for the assignment of the debt to the new creditor and of any consideration the new creditor has paid or given for the assignment. [Paragraph 245-61(b)]

Consideration

6.56 In the interests of consistency between the parties to a debt forgiveness transaction, the rules relating to consideration seek broadly to mirror those elsewhere in the Act, particularly those contained in the capital gains provisions of Part IIIA.

The general rules

6.57 The basic rules for valuing consideration are contained in subsection 245-65(1) . By and large, they reflect existing subsection 160ZD(1) in its application to capital gains. In summary, consideration is the sum of amounts of money the debtor is required to pay in respect of the forgiveness or, if property other than money is required to be given, the market value of the property. If both money and property are given, the consideration is the sum of the amounts of money and the market value of the property.

6.58 If the debt is a moneylending debt, ie, from a loan made by the creditor in the ordinary course of a moneylending business, consideration will include - in addition to any immediate money or property consideration - the market value of any obligation of the debtor to pay amounts in the future. This additional test will ensure that the value of consideration payable over a period of time appropriately reflects the time value of money and (in an appropriate case) the creditworthiness of the debtor.

Inadequate, excessive or no consideration

6.59 A specific rule, mirroring that in subsection 160ZD(2), applies in valuing consideration given in respect of the forgiveness of a non money lending debt where:

•

there is no consideration on the forgiveness of the debt;

•

the consideration given cannot be valued; or

•

the consideration given is not equal to the debt's value, and the debtor and creditor were not at arm's length in relation to the forgiveness.

6.60 If any of these criteria is met, for the purposes of calculating the gross forgiven amountthe debtor is deemed to have given consideration equal to the market value of the debt at the time of forgiveness [subsection 245-65(2)] .

Debt parking

6.61 Where a notional debt is taken to have been forgiven and a net forgiven amount of the notional debt is required to be calculated in accordance with paragraph 245-35(4)(e) (ie., the 'debt parking' rule), specific rules apply in determining the consideration given in respect of the forgiveness.

6.62 The first such rule applies where:

•

the debt is not a moneylending debt; and

•

the creditor and the new creditor were not dealing at arm's length in connection with the assignment.

In that case, the consideration is the market value of the debt at the time of the debt's assignment. [Paragraph 245-65(3)(a)]

6.63 In other cases, the consideration is the sum of any consideration the debtor has paid or given the creditor for the assignment of the debt to a new creditor and of any consideration the new creditor has paid or given for the assignment. [Paragraph 245-65(3)(b)]

Debt-for-equity swap

6.64 Subsection 245-35(5) describes circumstances of debt forgiveness where, effectively, a debt or part of a debt is forgiven in exchange for shares in the debtor company. In such a case, where money received by the debtor company in payment of the shares is applied towards payment of the debt, the consideration for the debt forgiven is the market value of the shares reduced in the proportion of the moneys applied in satisfaction of the debt over the whole amount of the money received. That is expressed by the formula in subsection 245-65(4) as:

amount applied / amount subscribed * market value of all shares subscribed for


Money or other property applied for the benefit of the creditor

6.65 Section 245-70 contains a specific rule, mirroring that in existing section 160D, to ensure that, for purposes of ascertaining the consideration in respect of the forgiveness of a debt, money or property that a debtor applies or is required to apply for the benefit, or in accordance with the directions, of the creditor, is regarded as having been paid or given to the creditor.

6.66 Section 245-75 specifies that, if no consideration is given for the forgiveness of a debt, the gross forgiven amount is equal to the notional value of the debt. If there is consideration and the notional value exceeds the consideration, the gross forgiven amount is the difference. Otherwise, there is no forgiven amount.

Calculation of net forgiven amount of a debt

6.67 The gross forgiven amountof the debt is to be reduced to the extent that the existing law already applies to it and, where applicable, that group companies agree that deductions in relation to the gross forgiven amount are forgone. The reduced amount is called the net forgiven amount . Subdivision 245-D sets out how to calculate the net forgiven amount.

Reduction factors

6.68 There are a number of ways in which the existing law may, either directly or indirectly, tax a debtor on the amount forgiven. Where, as a result of the forgiveness of the debt:

•

any amount has, is or will be included in the debtor's assessable income;

•

any amount by which a deduction would otherwise be allowable has been, or will be reduced; or

•

the cost base to the debtor of any asset has been or will be reduced,

the gross forgiven amount is reduced by that amount, to arrive at the net forgiven amount or provisional net forgiven amount [subsections 245-85(1) and (2)] . The provisional net forgiven amount is relevant only for the purpose of the intra group debt rules explained below.

Intra group debt

6.69 Where the debtor and creditor in a debt forgiveness are under common ownership throughout the term of the debt, section 245-90 provides for them to enter into an agreement under which the creditor forgoes an entitlement it would have to a capital loss under paragraph 160Z(1)(b) from forgiving the debt, or a deduction in the forgiveness year for a bad debt under subsection 51(1) or section 63.

6.70 If such an agreement is made, the creditor's capital loss or deduction is reduced to the extent of the amount agreed upon up to the provisional net forgiven amount. The provisional net forgiven amount is reduced by the same amount to arrive at the debtor's net forgiven amount. [Subsections 245-90(2) and (3)]

6.71 Item 2 of Part 2 of Schedule 2 of the Bill amends section 51 to ensure that a deduction otherwise allowable that the creditor has agreed to forgo is reduced to the extent of the amount forgone. Item 14 of Part 2 has similar effect in relation to a deduction otherwise allowable under section 63 some or all of which the creditor has agreed to forgo. Item 46 of Part 2 applies to reduce that part of the creditor's capital loss under paragraph 160Z(1)(b) that the creditor has agreed to forgo.

6.72 For the purposes of the debt forgiveness provisions, including the intra group debt rules in section 245-90 , the question of whether two or more companies are under common ownership is determined in the same way as in Division 19A of Part IIIA. That Division deals with the application of the capital gains provisions in the event of a transfer of assets between companies [section 245-250] . As discussed later at paragraphs 6.128 and 6.129 in relation to debt forgiveness of a company that is one of a group of related companies, section 160ZZRB of Division 19A of Part IIIA requires either that the companies be related companies within the meaning of section 160G - companies with 100% common beneficial ownership - or that they are companies the shares in which are held by the same natural persons in the same proportions.

6.73 In order for the intra group debt rule to apply, the relevant agreement between the debtor and creditor must be:

•

in writing;

•

signed by the public officer of the debtor and the public officer of the creditor; and

•

made before the earlier of the date of lodgment of the creditor's return of income for the forgiveness year of income, and of the debtor's return of income for that year. The Commissioner may determine a later date. [Subsection 245-90(4)]

Application of total net forgiven amount

6.74 When a debtor has a net forgiven amount in respect of the forgiveness of a debt, the commercial debt forgiveness provisions apply the amount in reduction of certain future tax deductions of the debtor. [Subdivision 245-E]

6.75 The first step in this process is to calculate the debtor's total net forgiven amount for the forgiveness year of income - the sum of all the net forgiven amounts in that year of income. [Subsection 245-105(1)]

6.76 By the time the debtor's return in respect of the forgiveness year of income is furnished to the Commissioner, the total net forgiven amount is to be applied, in order, in reduction of the following classes of future tax deductions:

•

deductible revenue losses;

•

deductible net capital losses;

•

deductible expenditure; and

•

cost bases of assets. [Section 245-105]

6.77 Within each class, the debtor may choose the relevant loss, item of expenditure or asset against which the total net forgiven amount is to be applied, subject to the proviso that it must be applied to the maximum extent possible within that class.

6.78 Once the total net forgiven amount has been applied in this way against all the reducible amounts of a class, any excess is applied, in the above order, against the next class of reducible amounts.

6.79 If, after applying the total net forgiven amountto the maximum extent possible against the debtor's reducible amounts, there is an excess, the excess is to be disregarded. [Subsection 245-195(1)]

6.80 The total net forgiven amount is not applied as described in calculating attributable income of a non-resident trust estate for the purposes of Division 6AAA of Part III or attributable income of a controlled foreign corporation for the purposes of Part X. [Section 245-100]

Deductible revenue losses

6.81 The table in section 245-110 sets out the kind of losses that can be deductible revenue losses . They are:

•

general domestic losses (subsections 79E(3), 80(2));

•

film losses (subsections 79F(6), 80AAA(7));

•

pre-1990 primary production losses (subsection 80AA(4)); and

•

foreign losses (subsections 160AFD(1), (2)).

6.82 In order to be a deductible revenue loss, in addition to being a loss of that kind, a deduction in respect of the loss must otherwise have been allowable to the debtor in the forgiveness year of income or any later year of income if the debtor had derived sufficient income or, in a relevant case, income of a particular kind against which the loss would be deductible [section 245-110] . In effect, deductible revenue losses are those listed in the table in section 245-110 that were incurred by the debtor in a year of income earlier than the forgiveness year of income and are undeducted at the beginning of the forgiveness year.

6.83 Sections 245-115 and 245-120 require that the total net forgiven amount be applied to the maximum extent possible in reduction of the debtor's deductible revenue losses although the debtor may choose which of the losses are to be reduced and the amount by which each is reduced.

6.84 Where a debtor's total net forgiven amount is applied in accordance with sections 245-115 and 245-120 in reduction of one or more of the categories of deductible revenue losses listed in section 245-110 , the application rules contained in the Act in relation to those categories of losses are henceforth to be applied on the basis that they are so reduced. A series of consequential amendments contained in items 22 to 26 , and items 44 and 45 of Part 2 of Schedule 2 of the Bill, ensure that consequence.

Deductible net capital losses

6.85 Section 245-125 defines the next category of amounts against which the total net forgiven amount is to be applied. The category is deductible net capital loss and comprises a net capital loss or a net listed personal-use asset loss which, under subsection 160ZC(4) or subsection 160ZQ(6), is taken to have been incurred in the income year immediately before the forgiveness year.

6.86 More colloquially, they are undeducted net capital losses incurred prior to the forgiveness year which could be deducted from capital gains derived, or added to capital losses incurred, in the forgiveness year or later years of income.

6.87 Sections 245-130 and 245-135 require that any residual part of the total net forgiven amount that has not been applied against deductible revenue losses is to be applied to the maximum extent possible against the deductible net capital loss, although the debtor may choose the order in which they are reduced and the amount of reduction of each.

6.88 Where a debtor's total net forgiven amount is applied in accordance with sections 245-130 and 245-135 in reduction of a net capital loss or net listed personal-use asset loss, the amount of such loss that would be taken to have been incurred in the immediately preceding year under subsection 160ZC(4) or 160ZQ(6) is reduced to the extent of the amount applied. Consequential amendments contained in items 47 and 49 of Part 2 of Schedule 2 of the Bill ensure that consequence.

Deductible expenditure

6.89 The table of deductible expenditure in subsection 245-140(1) sets out the third category of amounts, called deductible expenditure , against which the total net forgiven amount is to be applied.

6.90 Deductible expenditure is expenditure described in the table and incurred before the forgiveness year in respect of which a deduction would be allowable to the debtor against the income of the forgiveness year of income or a later year of income, assuming that no event or circumstance (other than a recoupment of the expenditure) occurred that would affect the allowance of the deduction [subsection 245-140(1)] . That is, deductible expenditure is limited to expenditure incurred before the forgiveness year which remains undeducted but which, on conditions prevailing at the beginning of the forgiveness year, would be deductible in that year or future years.

6.91 The deductible expenditures, and the existing provisions of the Act under which deductions are allowable, are set out below:

6.92 There are several circumstances in which expenditure will not be included in deductible expenditure. They are:

•

if the expenditure relates to an asset disposed of in an arm's length transaction before the forgiveness of any debt of the debtor in a year of income, and the Act requires no balancing adjustments on the disposal [subsection 245-140(2)]

•

if the expenditure relates to an asset that was disposed of by the debtor, or was lost or destroyed, on or before the commencement day [subsection 245-140(3)]

•

if the expenditure was recouped on or before the commencement day [subsection 245-140(4)] .

6.93 Sections 245-145 and 245-150 require that any residual part of the total net forgiven amount that has not been applied against deductible revenue losses and deductible net capital losses is to be applied to the maximum extent possible against deductible expenditures. The debtor may choose the order in which they are reduced and the amount of reduction of each.

6.94 Section 245-155 explains how reductions of deductible expenditure are to be made. The two methods of reducing deductible expenditure accord with the two broad methods the Act adopts for working out deductions in respect of the various kinds of deductible expenditure.

6.95 Where the deduction is worked out as a percentage, fraction or proportion of an amount (called the base amount ) without regard to amounts previously allowed, eg under the 'prime cost method' of depreciation specified in paragraph 56(1)(b) of the Act , the reduction is to be made to the base amount. That means the deductions allowable in the forgiveness year and later years of income will be the relevant percentage, fraction or proportion of the base amount as reduced [paragraph 245-155(1)(a)] .

6.96 The amount by which the base amount is reduced is to be taken into account as if it had been allowed as a deduction to the debtor before the forgiveness year in working out any balancing adjustment required to be made under the Act because of:

•

the disposal, loss or destruction of an asset for which the deductible expenditure was incurred;

•

the recoupment of deductible expenditure; or

•

the termination of use of the asset for a particular purpose [paragraph 245-155(1)(b)] .

Without such a provision the reduction of the relevant deductible expenditure would be nullified by either including too little in assessable income or allowing too great a deduction upon the relevant asset disposal, expenditure recoupment etc.

6.97 On reduction of the base amount, the total amount of deductions allowable to the debtor in respect of the deductible expenditure is limited to the reduced base amount. This includes amounts allowed as deductions before the forgiveness year. [Paragraph 245-155(1)(c)]

Example:

6.98 XCO Ltd acquires depreciable plant on 1 July 1994 for $10,000. It elects to use the prime cost method of depreciation. The prime cost rate for this type of plant is 20%. It therefore claims a depreciation deduction of $2,000 in the 94/95 and 95/96 years of income.

6.99 In the 96/97 year of income, a debt of XCO Ltd is forgiven, resulting in a net forgiven amount of $2,000. The circumstances enable XCO Ltd to choose to reduce this particular item of deductible expenditure.

6.100 Subsection 245-155(1) applies, as the depreciation deduction is calculated by reference to a base amount - in this case $10,000. For the purposes of calculating future depreciation deductions, this base amount is reduced by the forgiven amount to $8,000 [paragraph 245-155(1)(a)] . The annual depreciation deductions for the 1996/97 and subsequent income years are thus reduced to $1,600 (ie., $8,000 x 20%).

6.101 However the total depreciation allowable to the debtor in respect of the plant is limited to this new base amount [paragraph 245-155(1)(c)] . Therefore, depreciation would be restricted to $800 in the 1998/99 year of income.

6.102 The depreciation deductions that would be allowed if XCO Ltd continued to hold the depreciable plant are summarised in the following table:

6.103 Where a deduction in respect of deductible expenditure is worked out after taking into account amounts previously allowed as a deduction, eg. the 'diminishing value method' of depreciation specified in paragraph 56(1)(a) of the Act , the reduction to the deductible expenditure is applied by treating the amount of the reduction as if it had been allowed as a deduction to the debtor before the forgiveness year [subsection 245-155(2)] . The effect is illustrated by the following example:

Example:

6.104 YCO Ltd acquires depreciable plant on 1 July 1994 for $10,000. It uses the 'diminishing value' method of depreciation. The diminishing value rate for this type of plant is 30%. It therefore claims a depreciation deduction of $3,000 in the 94/95 year of income (30% x $10,000) and $2,100 in the 95/96 year of income (30% x ($10,000 - $3,000)).

6.105 In the 96/97 year of income, a debt of YCO Ltd is forgiven, resulting in a net forgiven amount of $2,000. The circumstances enable YCO Ltd to choose to reduce this particular item of deductible expenditure.

6.106 Subsection 245-155(2) applies, as under the 'diminishing value' method depreciation deductions are calculated by reference to the cost of the plant less depreciation previously allowed or allowable (the 'depreciated value' - see existing subsection 62(1)). Consequently, the forgiven amount is to be taken as having been allowed as a depreciation deduction, effectively reducing the 'depreciated value' to $2,900 (ie., $10,000 - ($3,000 + $2,100 + $2,000)).

6.107 Thus, depreciation in the 96/97 year of income would be $870 (ie. 30% of $2,900). The depreciation deductions that would be allowed if YCO Ltd continued to hold the depreciable plant are summarised in the following table:

6.108 Some provisions of the Act relating to deductible expenditure, eg. s.75AA(8), s.82BE and s.122T, require previous deductions to be disallowed to the extent that deductible expenditure is recouped. Section 245-160 will apply in such a case if recoupment occurs after a forgiven amount has been applied to reduce the deductible expenditure. To the extent of any such reduction, the recoupment will be treated as assessable income of the debtor in the year the expenditure is recouped. This will ensure that such expenditure recoupment provisions do not nullify the effect of the debt forgiveness provisions.

6.109 Where a debtor's total net forgiven amount is applied in accordance with sections 245-145 and 245-150 in reduction of one or more of the categories of deductible expenditure listed in subsection 245-140(1), deductions in respect of that expenditure henceforth are to be calculated on the basis that the expenditure had been so reduced. A series of consequential amendments contained in items 3 to 13, 15 to 21 and 27 to 43 of Part 2 of Schedule 2 of the Bill ensures that consequence.

Cost bases of reducible assets

6.110 The final category of amounts that may be reduced by a debtor's total net forgiven amount is the cost base of assets owned by the debtor at the beginning of the forgiveness year of income. These are called reducible assets . The amount to be applied in reduction of the cost bases of reducible assets is the residual part of total net forgiven amount that has not been applied to reduce the debtor's deductible revenue losses, deductible net capital losses and deductible expenditures. (Refer to the definitions of reducible asset and residual forgiven amount in subsection 245-165(1) .)

6.111 Section 245-170 contains a list of assets, called excluded assets , that are not to be treated as reducible assets. One group of excluded assets is assets the disposal of which will not, or is unlikely to, result in a capital gain or loss to the debtor, including:

•

assets acquired before 20 September 1985;

•

non-listed personal-use assets;

•

a dwelling that was the sole or principal residence of the debtor at any time before the forgiveness year of income;

•

goodwill;

•

a right to, or to any part of, an allowance, annuity or capital amount payable out of an asset of a superannuation fund or an approved deposit fund or a right to, or to a part of, an asset of such a fund;

•

an asset that was trading stock of the debtor at all times prior to the forgiveness year of income;

•

where the debtor is a non-resident - an asset that is not a taxable Australian asset.

6.112 Cost bases of assets disposed of on or before the commencement day are also to be excluded assets. [Paragraph 245-170(b)]

6.113 Another category of excluded asset is an asset expenditure in relation to which is deductible expenditure, and in respect of which there would be a balancing adjustment on the disposal of that asset [paragraph 245-170(h)] , eg. depreciable plant or articles within the meaning of subsection 54(1) of the Act.

6.114 Sections 245-175 and 245-180 require that any residual part of the total net forgiven amount that has not been applied against deductible revenue losses, deductible net capital losses and deductible expenditure is to be applied to the maximum extent possible to reduce relevant cost bases of reducible assets. (By the definition in subsection 245-165(1) , relevant cost bases mean cost bases, indexed cost bases or reduced cost bases of assets as those terms are defined in the capital gains provisions of Part IIIA.) The debtor may choose the reducible assets to be reduced and the extent of the reduction.

6.115 However, the cost bases of reducible assets that constitute investments in associates of the debtor must be reduced last, ie., after the residual forgiven amount has been applied to the maximum extent possible in reduction of the cost bases of other reducible assets of the debtor [section 245-185] . For this purpose, associates can be natural persons, partnerships or trustees of a trust or company that are associates (as defined in section 245-245 ) of the debtor. Relevant associate investments would include an interest in a partnership, a beneficial interest under a trust, a share in a company and a debt owed to the debtor.

6.116 When a debtor chooses to apply an amount in reduction of the relevant cost bases of a particular asset, section 245-190 stipulates that, as at any time after the beginning of the forgiveness year, each of those cost bases is taken to be reduced accordingly. Ordinarily, the reduction of an asset's cost bases cannot exceed the amount that would have been the reduced cost base of the asset calculated as at the first day of the forgiveness year, ie., as if it had been disposed of on that day. However, if an event occurred after the beginning of the forgiveness year of income that would cause the reduced cost base of the asset to be reduced, the reduction of the asset's cost bases under the debt forgiveness provisions cannot exceed the amount that would have been the reduced cost base of the asset calculated as if the asset had been disposed of on the day that the event occurred. Division 19A of Part IIIA and section 160ZP(13) are examples of provisions in the law that could cause the reduced cost base of an asset to be reduced.

6.117 The reduction of relevant cost bases of an asset will affect the calculation of a capital gain or capital loss on the subsequent disposal of the asset because the relevant cost base that would be taken into account in determining the capital gain or loss must reflect that reduction.

Example:

(i)

Assume debtor A has applied residual forgiven amount of $1,000 to reduce the cost bases of an asset owned on 1 July 1997. The asset is disposed of subsequently for $10,000 at a time when its indexed cost base is $8,000. Under ordinary capital gains calculations, the capital gain is $2,000 ($10,000 - $8,000). However, the indexed cost base must be reduced by $1,000 in accordance with subsection 245-190(1) . The capital gain becomes $3,000 ($10,000 - $7,000).

(ii)

Assume, as in example (i), debtor A has applied the residual forgiven amount of $1,000 to reduce the cost bases of an asset. The asset is disposed of subsequently for $800 at a time when its indexed cost base is $1,100 and its reduced cost base is $1,000.

Under ordinary capital gains calculations, there would be a capital loss of $200 ($1,000 - $800). However, both the indexed cost base and the reduced cost base must be reduced by $1,000 (in accordance with subsection 245-190(1) ) to $100 ($1,100 - $1,000) and nil ($1,000 - $1,000) respectively. Consequently, the debtor realises a capital gain of $700 ($800 - $100).

6.118 Where a debtor's total net forgiven amount is applied in accordance with sections 245-175 and 245-180 in reduction of the relevant cost bases of a reducible asset, the cost base, indexed cost base and reduced cost base of the asset for capital gains purposes in accordance with section 160ZH are to be reduced accordingly. [Item 48 of Part 2 of Schedule 2]

Unapplied total net forgiven amount

6.119 Section 245-195 operates to ensure that any part of a debtor's total net forgiven amount of a forgiveness year that is not able to be applied in reduction of deductible revenue losses, deductible net capital losses, deductible expenditures and relevant cost bases of assets is disregarded for purposes of the debt forgiveness provisions.

Partnerships

6.120 Subdivision 245-F sets out special rules relating to partnerships. Section 245-210 has the effect that if there is a total net forgiven amount of a partnership in respect of the partnership debts, that amount is required to be applied in reduction of the categories of amounts specified in subsections 245-105(5), (6), (7) and (8) - to the extent that a partnership would have entitlements to those amounts - in the same manner as for other taxpayers.

6.121 If any part of the total net forgiven amount is unable to be so applied, that part is allocated to the partners in the proportion that they share in the net income of the partnership or, as the case requires, the partnership loss of the forgiveness year. The formula in subsections 245-215 (3) and (4) reflect that allocation. The amount so allocated to each partner is added to any net forgiven amounts of the debts of the partner in calculating the partner's total net forgiven amount.

6.122 Those partnership rules do not apply to corporate limited partnerships, as defined in section 94D of the Act, but the debt forgiveness rules apply generally to a corporate limited partnership as if it was a company. [Section 245-205]

Related companies

6.123 If a debt of a company is forgiven, Subdivision 245-G will apply if the company is one of a group of related companies at the time of debt forgiveness and any non-debtor companies in the group have deductible revenue losses. It will also apply if none of the companies in the group have deductible revenue losses but any non-debtor companies in the group have deductible net capital losses.

6.124 Subdivision 245-G apportions the net forgiven amount of a company's debt firstly among those companies in the group which have deductible revenue losses as at the end of the income year immediately preceding the forgiveness year (calculated as if each of those companies were the debtor company which incurred the forgiven debt [subsection 245-245(2)] . The relevant proportion is the proportion of each company's deductible revenue losses to the total revenue losses of the group. For example, if the net forgiven amount of a debt was $6m and the debtor company itself had deductible revenue losses of $2 million and there were two other group companies with deductible revenue losses of $3 million and $4 million respectively, they will be treated respectively as having had a net forgiven amount calculated as follows:

Debtor company: 2 / 9 x 6 = $1.33m Group company 1: 3 / 9 x 6 = $2.00m Group company 2: 4 / 9 x 6 = $2.67m


6.125 That is, applying the formula in subsection 245-230(3) , each 'loss' company in the group is treated as if it had a debt forgiven equal to the relevant proportion of the actual debt forgiven. The amount of any such 'deemed' net forgiven amount will be taken into account in working out each company's total net forgiven amount under subsection 245-105(1) and applied in the usual way to reduce each company's deductible revenue losses, deductible net capital losses, deductible expenditure and cost bases of reducible assets. If the debtor company is one of the 'loss' companies, its net forgiven amount is the proportionate 'deemed' net forgiven amount instead of the actual net forgiven amount - see subsection 245-230(2) .

6.126 If none of the companies in the group of related companies has deductible revenue losses, but one or more of the non-debtor companies in the group has deductible net capital losses, section 245-235 will apply an equivalent formula to that in section 245-230 to apportion the net forgiven amount of a group company among the group companies with deductible net capital losses. Each of those companies will be treated as having a debt forgiven equal to the relevant proportion of the actual debt forgiven for the purpose of working out its total net forgiven amount under subsection 245-105(1).

6.127 If none of the non-debtor companies in the group of related companies has deductible revenue losses nor net capital losses as at the end of the income year preceding the forgiveness year Subdivision 245-G does not apply. In that case, any actual net forgiven amount of a debtor company is not apportionable. [Section 245-240]

Determining the existence of a group of related companies

6.128 For purposes of Subdivision 245-G, it is necessary to determine at the time when a debt incurred by a company is forgiven whether or not there is a group of related companies in respect of the debt, [subsections 245-225(1) and (2)] . There will be such a group if the debtor company and another company or companies are under common ownership at the time the debt is forgiven and on the last day of the immediately preceding year of income.

6.129 That is, a group comprises the debtor company and any other company with which it is under common ownership at the end of the previous income year and on the day on which the debtor company's debt is forgiven. Whether or not companies are under common ownership is determined, under section 245-250 , in the same way as is would be under section 160ZZRB. That section requires either that the companies be related companies within the meaning of section 160G - companies with 100% common beneficial ownership - or that they are companies the shares in which are held by the same natural persons in the same proportions.

6.130 In the ordinary course of events, those rules mean that the apportionment arrangements described above will not affect a company which ceases to be under common ownership with the debtor company before the debt forgiveness. In certain circumstances, however, a company that was not under common ownership with the debtor company at the times specified by subsection 245-225(2) - the day of forgiveness and the last day of the previous income year - will nevertheless be included in the relevant group of related companies. Subsection 245-225(3) will require such an outcome where -

•

the company had been under common ownership with the debtor company at any time from the beginning of the second last income year before the forgiveness year of income up to the time of forgiveness; and

•

they were under common control immediately before and after they ceased to be under common ownership, and at the time when the debt was forgiven.

6.131 Under those conditions, the company that had ceased to be under common ownership with the debtor company will be included in the group of related companies for the purposes of apportioning the net forgiven amount of the debtor company's debt in the manner specified in sections 245-230 and 245-235.

6.132 The test for companies being under common control is whether a taxpayer who is a 'controller' of one company is also a 'controller' of the other company. Section 245-255 requires that the question whether a taxpayer was a 'controller' of a company at a particular time be determined in the same way as under section 160ZZRN.

6.133 Section 160ZZRN applies for the purposes of the capital gains share value shifting provisions (Division 19B) of Part IIIA. Under those provisions, a taxpayer will be a controller of a company if one of 3 tests is satisfied -

(i)

the taxpayer has an 'associate - inclusive control interests' in the company of not less than 50%. Broadly, that means that the taxpayer and/or associates of the taxpayer hold or are entitled to acquire at least 50% of the control of a company through direct share-holder interests or indirect interests traced through interposed entities;

(ii)

the taxpayer has an 'associate - inclusive control interest' in the company of not less than 40% and the company is not controlled by a group of entities that do not include the taxpayer or the taxpayer's associates; or

(iii)

the taxpayer controls the company alone or with associates.

6.134 In applying section 160ZZRN to determine whether or not a taxpayer is a controller of a company, the terms 'associate', 'entity', 'group' and 'associate - inclusive control interest' derive from similar terms that are contained in Division 1 of Part X relating to the attribution of income to controlled foreign corporations. By its reference to section 160ZZRN, section 245-255 adopts those terms and the three alternative tests for determining whether or not a taxpayer is a controller of a company at any time.

General

6.135 Subdivision 245-H provides definitions of terms used in new Division 245. These are included in section 245-245 . The Subdivision also contains rules relating to record keeping (discussed below).

Time of incurring debt

6.136 In some cases it may be difficult to establish a particular time when a debt is incurred, eg. the amount owing on a bank overdraft. To make the application of the debt forgiveness provisions more certain, section 245-260 specifies that, where a debt results from the debtor's drawing down on an established line of credit, the debt is taken to have been incurred at the time when the debtor first drew on the line of credit. In the case of a bank overdraft that would be the initial draw down.

6.137 However, where a debt is repaid, such that there is no longer an amount owing, the time of incurrence will be that of the next draw down under the line of credit.

Record keeping

6.138 To facilitate compliance with and administration of the debt forgiveness rules, section 245-265 contains record keeping rules which supplement other record keeping requirements under the Act (eg section 262A).

6.139 The records are required to be kept in writing in the English language or in a form that is readily accessible and convertible into writing in the English language. For example, records kept on computer disks are acceptable as long as the information can readily be printed out in the English language [subsection 245-265(3)] .

6.140 Subsection 245-265(1) requires a person who incurs a commercial debt (as defined in section 245-25) to keep any records that are necessary to enable the following information to be readily ascertained:

•

the date on which the debt was incurred;

•

the identity of the creditor;

•

the amount of the debt;

•

the terms of repayment of the debt;

•

at the time the debt was incurred, the debtor's capacity to pay the debt when it falls due ( this is required only if the debt is not a moneylending debt and the debtor and creditor were not dealing with each other at arm's length in respect of the incurring of the debt); and

•

if the debtor's obligation to pay the debt is forgiven - the date of forgiveness, and the consideration in respect of forgiveness.

6.141 Where a debt is forgiven, those records are required to be kept until the end of 5 years after the debt is forgiven. However, if the period for amending an assessment of an income year records are relevant is extended by existing subsection 170(4A) or (4B), the records must be kept for the extended period. [Subsection 245-265(4)]

6.142 If, however, the whole of the debt is paid in cash, the records are not required to be kept after the payment is made [subsection 245-265(5)] .

Companies

6.143 Subsection 245-265(2) requires a company which ceases to be under common ownership (as specified in section 245-250) with another company or other companies to keep any records that are necessary to enable the following information to be readily ascertained:

•

the date on which the company ceased to be under common ownership;

•

the identity of each person who was a controller of the company immediately before the company ceased to be under common ownership; and

•

the identity of each person who was a controller of the company immediately after the company ceased to be under common ownership.

6.144 A company is required to keep the necessary records until the end of the second year of income after the year of income in which the company ceased to be under common ownership with another company or other companies [subsection 245-265(6)] .

6.145 That period is extended if any of the companies previously under common ownership is forgiven a debt before the end of that second year of income. In that case, the records must be kept until the end of 5 years after the debt was forgiven. It is further extended if the period for amending an assessment of a relevant income year is extended by existing subsection 170(4A) or (4B). [Subsection 245-265(7)]

Penalty

6.146 Failure to keep records as required by a provision of section 245-265 is punishable by a fine of up to 30 penalty units [subsection 245-265(8)] . As defined in section 4AA of the Crimes Act 1914 , each 'penalty unit' is $100.

6.147 Part 2 of Schedule 2 of the Bill will make amendments to provisions of the Act that are consequential upon the amendments relating to the forgiveness of commercial debts discussed above. The consequential amendments are referred to in paragraphs 6.71, 6.84, 6.88, 6.109 and 6.118 above.