Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7A - Distributions to entities connected with a private company  

Subdivision C - Forgiven debts that are not treated as dividends  

SECTION 109G   DEBT FORGIVENESS THAT DOES NOT GIVE RISE TO A DIVIDEND  

109G(1)   Forgiveness of debt owed by company generally not treated as dividend.  

A private company is not taken under this Division to pay a dividend because a debt owed to it by another company is forgiven.

Note:

This does not apply to a debt owed by a company as trustee. (See section 109ZE .)

109G(2)   Forgiveness of debts under Bankruptcy Act not treated as dividends.  

A private company is not taken under this Division to pay a dividend because a debt is forgiven because the debtor becomes a bankrupt or because of Part X of the Bankruptcy Act 1966 .

109G(3)   Forgiveness of loan debt does not give rise to dividend if loan gives rise to dividend under section 109D.  

A private company is not taken under section 109F to pay a dividend at the end of a year of income because of the forgiveness of an amount of a debt resulting from a loan if, because of the loan, the private company is taken:

(a) under section 109D to pay a dividend at the end of that year or an earlier one; or

(b) under former subsection 108(1) to pay a dividend on the last day of that year or an earlier one.

109G(3A)   Reduced dividend for forgiveness of loan debt if loan causes dividend under section 109E.  

Subsection (3B) applies if:

(a) a private company is taken under section 109F to pay a dividend at the end of a year of income because of the forgiveness of an amount of a debt resulting from a loan; and

(b) the private company is taken under section 109E to pay a dividend at the end of an earlier year of income in relation to the loan.

109G(3B)   [ Reduction amount]  

The amount of the dividend mentioned in paragraph (3A)(a) is reduced by the amount of the dividend mentioned in paragraph (3A)(b) (but not below zero).

Note:

There may be more than one reduction under this subsection if the private company has been taken under section 109E to pay more than one dividend in relation to the loan.

109G(4)   Commissioner may treat forgiveness as not giving rise to dividend.  

A private company is not taken under this Division to pay a dividend because of the forgiveness of a debt owed by an entity if the Commissioner is satisfied that:

(a) the debt was forgiven because payment of the debt would have caused the entity undue hardship; and

(b) when the entity incurred the debt, the entity had the capacity to pay the debt; and

(c) the entity lost the ability to pay the debt in the foreseeable future as a result of circumstances beyond the entity's control.