Income Tax Assessment Act 1936
(Repealed by No 79 of 2010)
View history note
Hide history noteSch 2C repealed by No 79 of 2010 , s 3 and Sch 2 item 1, effective 1 July 2010. Sch 2C formerly read:
SCHEDULE 2C - FORGIVENESS OF COMMERCIAL DEBTS
Division 245 - Forgiveness of commercial debts
HistoryDiv 245 inserted by No 76 of 1996.
Guide to Division 245
SECTION 245-1 WHAT THIS DIVISION IS ABOUT
This Division applies if:
(a) a debt or part of a debt ceases to be payable because the obligation to pay the debt or part is released or waived, or is otherwise extinguished (this is referred to as the forgiveness of the debt or part); and (b) there are amounts ( reducible amounts ) that would otherwise be taken into account in reducing the debtor ' s taxable income of the year of income in which the debt is forgiven or a later year of income. The forgiven amount of the debt is treated as having been used to generate the reducible amounts and is accordingly applied to reduce them in a particular order.
If the debtor is a company that is included in a group of related companies, the forgiven amount of the debt may be treated as having been used to generate reducible amounts of one or more of the other companies.
SECTION 245-2 SIMPLIFIED OUTLINE OF THIS DIVISIONHistoryS 245-1 inserted by No 76 of 1996.
245-2(1)
This Division applies to the forgiveness of the whole or a part of a commercial debt.
245-2(2)
The forgiveness of a debt under an Act relating to bankruptcy, by will, or for reasons of natural love and affection, is not affected by the provisions of the Division.
245-2(3)
Provision is made for the calculation of the gross forgiven amount in respect of each debt.
245-2(4)
The gross forgiven amount may then be reduced by certain amounts that are taken into account in assessing the debtor ' s taxable income apart from this Division.
245-2(5)
If the debt is owed between group companies, the gross forgiven amount may be further reduced in certain circumstances.
245-2(6)
The amount remaining after all reductions to the gross forgiven amount is the net forgiven amount in respect of the debt.
245-2(7)
The total net forgiven amount of all debts of a particular debtor that are forgiven in the same year of income (the forgiveness year of income ) is to be applied in reduction of certain amounts that may otherwise be taken into account in assessing the debtor ' s taxable income.
245-2(8)
The amounts to be reduced are certain revenue losses, net capital losses and other deductible amounts and the cost bases of certain assets.
245-2(9)
Special rules apply in respect of debts of partnerships other than corporate limited partnerships.
245-2(10)
Special rules apply in respect of debts of a company if the company is included in a group of related companies.
SECTION 245-3 MAP OF THIS DIVISIONHistoryS 245-2 inserted by No 76 of 1996.
HistoryS 245-3 inserted by No 76 of 1996.
Subdivision 245-A - Debts to which this Division applies
Guide to Subdivision 245-AHistorySubdiv 245-A inserted by No 76 of 1996.
SECTION 245-5 WHAT THIS SUBDIVISION IS ABOUT
The purpose of this Subdivision is to identify the debts to which this Division applies.
SECTION 245-6 MAP OF THIS SUBDIVISIONHistory245-5 inserted by No 76 of 1996.
Operative provisionsHistoryS 245-6 inserted by No 76 of 1996.
SECTION 245-10 APPLICATION OF THIS DIVISION
245-10(1)
Subject to subsection (2), this Division applies to a forgiveness of a commercial debt but so applies only if the forgiveness occurs after the commencement day.
245-10(2)
This Division does not apply to a forgiveness referred to in subsection (1) if the forgiveness occurs in accordance with the terms of an agreement or arrangement that:
(a) was entered into on or before the commencement day; and
(b) is evidenced in writing otherwise than by a document evidencing the agreement or transaction under which the debt arose.
SECTION 245-15 WHAT IS A DEBTHistoryS 245-10 inserted by No 76 of 1996.
245-15(1)
Subject to this section, a debt is an enforceable obligation imposed by law on a person to pay an amount to another person.
245-15(2)
If such an obligation is waived and the waiver constitutes a fringe benefit, the debt constituted by the obligation is to be disregarded for the purposes of this Division.HistoryS 245-15(2) amended by No 101 of 2006 , s 3 and Sch 2 item 504, by omitting " within the meaning of the Fringe Benefits Tax Assessment Act 1986 " after " fringe benefit " , effective 14 September 2006. For application and savings provisions see the CCH Australian Income Tax Legislation archive .
245-15(3)
An amount that, apart from this subsection, would be an enforceable obligation referred to in subsection (1) is not to be regarded as a debt if the amount has been, or will be, included in the assessable income of any year of income of the person on whom the obligation is imposed.
HistoryS 245-15 inserted by No 76 of 1996.
SECTION 245-20 SECTION 245-20 DEBT INCLUDES ACCRUED INTEREST
245-20
If there is, in respect of a debt, any interest or amount in the nature of interest that has accrued but has not been paid, the obligation to pay that interest or amount is not a separate debt but the first-mentioned debt includes the obligation to pay the interest or amount.SECTION 245-25 WHAT CONSTITUTES A COMMERCIAL DEBTHistoryS 245-20 inserted by No 76 of 1996.
245-25(1)
A debt is a commercial debt if subsection (2), (3) or (4) provides that the debt is a commercial debt.HistoryS 245-25(1) amended by No 122 of 1997.
245-25(2) Debt on which interest paid is an allowable deduction.Subject to subsection (4A), a debt is a commercial debt if the whole or any part of interest, or of an amount in the nature of interest, paid or payable in respect of the debt:
(a) is or would be allowable as a deduction to the debtor; or
(b) would be so allowable apart from the operation of an exception provision.HistoryS 245-25(2) amended by No 122 of 1997.
245-25(3) Debt on which no interest is payable.A debt is a commercial debt if interest, or an amount in the nature of interest, is not payable in respect of the debt but, had interest or such an amount been payable, the whole or any part of the interest or amount:
(a) would have been allowable as a deduction to the debtor; or
(b) would have been so allowable apart from the operation of an exception provision.
245-25(4)
A non-equity share issued by a company is taken to be a commercial debt owed by the company to the shareholder.HistoryS 245-25(4) substituted by No 163 of 2001.
245-25(4A) Debt to Commonwealth not a commercial debt.A debt owed to the Commonwealth that arose under a law relating to taxation is not a commercial debt.
HistoryS 245-25(4A) inserted by No 122 of 1997.
245-25(5) Meaning of exception provision.In this section:
exception provision
means a provision of this Act that has the effect of preventing a deduction that would otherwise be allowable, but does not include paragraphs 8-1(2)(a), (b) and (c) of the Income Tax Assessment Act 1997 (which prevent deductions for capital, private or domestic outgoings and for outgoings relating to exempt income).HistoryS 245-25(5) amended by No 121 of 1997.
HistoryS 245-25 inserted by No 76 of 1996.
SECTION 245-26 SECTION 245-26 APPLICATION TO TRUSTEES
245-26
This Division applies to a person in the capacity of a trustee of a trust estate in respect of the trust estate ' s debts, and references in this Division to a debtor include a reference to a person in the capacity of a trustee of a trust estate in respect of the trust estate ' s debts.HistoryS 245-26 inserted by No 76 of 1996.
Subdivision 245-B - What constitutes forgiveness of a debt
Guide to Subdivision 245-BHistorySubdiv 245-B inserted by No 76 of 1996.
SECTION 245-30 WHAT THIS SUBDIVISION IS ABOUT
This Subdivision explains the circumstances in which a debt is taken to have been forgiven for the purposes of this Division.
SECTION 245-31 MAP OF THIS SUBDIVISIONHistoryS 245-30 inserted by No 76 of 1996.
Operative provisionsHistoryS 245-31 inserted by No 76 of 1996.
SECTION 245-35 WHAT CONSTITUTES FORGIVENESS OF A DEBT
245-35(1) Obligation to pay debt forgiven.A debt is forgiven if the debtor ' s obligation to pay the debt is released or waived, or is otherwise extinguished.
245-35(2) Right to sue for debt ceases because of statute of limitations.A debt is forgiven if 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.
245-35(3) Agreement to end obligation to pay debt with effect from a future time.If:
(a) the debtor and creditor in relation to a debt enter into an agreement or arrangement (whether or not enforceable by legal proceedings); and
(b) under the agreement or arrangement the debtor ' s obligation to pay the whole or a part of 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);the debt or the part of the debt is taken to be forgiven when the agreement or arrangement is entered into. If, after the agreement or arrangement is entered into, the debt or the part of the debt is forgiven, the last-mentioned forgiveness is disregarded for the purposes of this Division.
245-35(4) Debt parking.If:
(a) the creditor, in relation to a debt, assigns the right to receive payment of the debt to another person (the new creditor ); and
(b) either:
(i) the new creditor is an associate of the debtor; or
(ii) the assignment occurred under an agreement or arrangement to which the new creditor and the debtor were parties; and
(c) the right to receive payment of the debt was not acquired by the new creditor in the ordinary course of trading on a securities market;this Division has effect as if:
(d) the debtor had, at the time of the assignment, been forgiven a debt (the notional debt ) equal to the amount of the assigned debt; and
(e) the net forgiven amount of the notional debt were equal to the amount that would have been the net forgiven amount of the assigned debt if that debt had been forgiven instead of being assigned.
245-35(5) Subscription for shares to enable debt to be paid.If:
(a) a person subscribes for shares in a company to enable the company to make a payment in or towards discharge of a debt owed by it to the person; and
(b) the company applies all or any of the money subscribed in or towards payment of the debt;then:
(c) so much of the debt as is paid out of the money so applied is taken to be forgiven; and
(d) the time of the forgiveness is taken to be the time when the money is so applied.
245-35(6) Definition.In this section:
securities market
means a market, exchange or other place on which, or a facility by means of which, offers to sell, buy or exchange securities (within the meaning of Division 16E of Part III ) are made or accepted.HistoryS 245-35 inserted by No 76 of 1996.
SECTION 245-40 SECTION 245-40 FORGIVENESSES TO WHICH THIS DIVISION DOES NOT APPLY
245-40
This Division does not apply to a forgiveness of a debt if:
(a) the forgiveness is effected under an Act relating to bankruptcy; or
(b) the forgiveness is effected by will; or
(c) the debt is forgiven for reasons of natural love and affection.HistoryS 245-40 inserted by No 76 of 1996.
Subdivision 245-C - Calculation of gross forgiven amount of a debt
Guide to Subdivision 245-CHistorySubdiv 245-C inserted by No 76 of 1996.
SECTION 245-45 WHAT THIS SUBDIVISION IS ABOUT
If a debt is forgiven, this Subdivision sets out the steps to be followed in calculating the gross forgiven amount of the debt.
HistoryS 245-45 inserted by No 76 of 1996.
SECTION 245-46 SECTION 245-46 SIMPLIFIED OUTLINE OF THIS SUBDIVISION
245-46
(a) The first step is to work out the notional value of a debt that has been forgiven
• The notional value of the debt is calculated as at the time when the debt was forgiven on the basis that the debt was an asset of the creditor at that time.
• The notional value of the debt is worked out for the purpose of calculating the gross forgiven amount of the debt.
• A special rule applies for the purpose of working out the notional value of a non-recourse debt.
• Another special rule applies for the purpose of working out the notional value of a debt that has been parked.
(b) The second step is to work out the consideration (if any) in respect of the forgiveness of the debt.
(c) If no such consideration was paid or given, the gross forgiven amount of the debt is equal to the notional value of the debt.
(d) If any such consideration was paid or given, the gross forgiven amount of the debt is obtained by deducting the consideration from the notional value of the debt.SECTION 245-47 MAP OF THIS SUBDIVISIONHistoryS 245-46 inserted by No 76 of 1996.
Operative provisionsHistoryS 245-47 inserted by No 76 of 1996.
SECTION 245-50 SECTION 245-50 WHAT CONSTITUTES A FORGIVEN DEBT IF CONSIDERATION IS GIVEN IN RESPECT OF THE FORGIVENESS
245-50
If any consideration is paid or given in respect of the forgiveness of a debt, the debt that is forgiven is taken to be:
(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.SECTION 245-55 WORKING OUT NOTIONAL VALUE OF A DEBT OTHER THAN A NON-RECOURSE DEBTHistoryS 245-50 inserted by No 76 of 1996.
245-55(1)
Subject to sections 245-60 and 245-61 , the notional value of a debt at the time when it was forgiven is the lesser of the amount worked out under subsection (2) (the first applicable amount ) and the amount worked out under subsection (3) (the second applicable amount ).
245-55(2)
The first applicable amount is the amount that would have been the value of the debt (considered as an asset of the creditor) at the time when it was forgiven if:
(a) except where subsection (4) applies in relation to the debt, at the time when the debt was incurred the debtor was able to pay all the debtor ' s debts (including the debt concerned) as and when they fell due; and
(b) the debtor ' s capacity to pay the debt at the time when it was forgiven was the same as the debtor ' s capacity to pay the debt at the time when it was incurred.
245-55(3)
The second applicable amount is the sum of the following amounts:
(a) the amount that would have been the value of the debt (considered as an asset of the creditor) at the time when it was forgiven if:
(i) except where subsection (4) applies in relation to the debt, at the time when the debt was incurred the debtor was able to pay all the debtor ' s debts (including the debt concerned) as and when they fell due; and
(ii) the debtor ' s capacity to pay the debt at the time when it was forgiven was the same as the debtor's capacity to pay the debt at the time when it was incurred; and
(iii) no changes occurred, between the time when the debt was incurred and the time when the debt was forgiven, in any market variables; and
(b) the amount or the sum of the amounts of any deduction or deductions that:
(i) have been allowed or are allowable to the debtor as a result of the forgiveness of the debt; and
(ii) are attributable to changes in market variables that occurred between the time when the debt was incurred and the time when the debt was forgiven.
245-55(4)
Paragraph (2)(a) and subparagraph (3)(a)(i) do not apply in relation to a debt if:
(a) either:
(i) at the time when the debt was forgiven the creditor was a resident; or
(ii) the forgiveness of the debt was a CGT event involving a CGT asset that was taxable Australian property; and
(b) the debtor and the creditor were not dealing with each other at arm's length in respect of the incurring of the debt; and
(c) the debt was not a moneylending debt.HistoryS 245-55(4) amended by No 168 of 2006 , s 3 and Sch 4 item 27, by substituting " that was taxable Australian property " for " having the necessary connection with Australia " in para (a)(ii), applicable to CGT events that happen on or after 12 December 2006.
S 245-55(4) substituted by No 122 of 1997; amended by No 46 of 1998.
245-55(5)
In this section:market variables
, in relation to a debt, means changes in rates of interest, and changes in the rates of exchange between currencies, that affect the value of the debt.
SECTION 245-60 SPECIAL RULE FOR WORKING OUT NOTIONAL VALUE OF A NON-RECOURSE DEBTHistoryS 245-55 inserted by No 76 of 1996.
245-60(1)
This section applies to a debt (the non-recourse debt ) if the debt was incurred directly in respect of the financing of the cost of the acquisition, construction or development of property (but not including the manufacture of goods) by the debtor and the rights of the creditor as against the debtor in the event of default in the payment of the debt or the payment of interest are limited to all or any of the following:
(a) rights (including the right to moneys payable) in relation to all or any of the following:
(i) the property or the use of the property;
(ii) goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the property;
(iii) the loss or disposal of the whole or a part of the property or of the debtor's interest in the property;
(b) rights in respect of a mortgage or other security over the property;
(c) rights arising out of any arrangement relating to the financial obligations, in relation to the property, of the end-user of the property towards the debtor.
245-60(2)
The notional value of a non-recourse debt at the time when it was forgiven is the lesser of the following:
(a) the amount of the non-recourse debt outstanding at that time;
(b) the market value at that time of the creditor's rights referred to in subsection (1) of this section.
245-60(3)
In this section:end-user
, in relation to property, has the same meaning as in section 51AD.
HistoryS 245-60 inserted by No 76 of 1996.
SECTION 245-61 SECTION 245-61 SPECIAL RULE FOR WORKING OUT NOTIONAL VALUE OF PARKED DEBT
245-61
If a debt that has been assigned as mentioned in subsection 245-35(4) is forgiven, the notional value of that debt 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 value of the consideration (if any) that the debtor has paid or given, or is required to pay or give, to the creditor in respect of the assignment; and
(ii) the amount or value of the consideration (if any) paid or given by the new creditor in respect of the assignment.SECTION 245-65 THE CONSIDERATION IN RESPECT OF FORGIVENESS OF A DEBTHistoryS 245-61 inserted by No 76 of 1996.
245-65(1)
Subject to subsection (2), the consideration in respect of the forgiveness of a debt (other than a debt to which subsection (3) or (4) applies) is:
(a) if the debtor has paid, or is required to pay, an amount or amounts of money as a result of, or in respect of, the forgiveness of the debt:
(i) if the debt is not a moneylending debt - that amount or the sum of those amounts; or
(ii) if the debt is a moneylending debt - the sum of the amount or amounts (if any) that the debtor has paid and the market value, at the time of the forgiveness, of the debtor's obligation to pay an amount or amounts; or
(b) if the debtor has given, or is required to give, property other than money as a result of, or in respect of, the forgiveness of the debt - the market value of the property at the time of the forgiveness; or
(c) if the debtor has paid or given, or is required to pay or give, both an amount or amounts of money and property other than money as a result of, or in respect of, the forgiveness of the debt:
(i) if the debt is not a moneylending debt - the sum of that amount or those amounts and the market value of the property at the time of the forgiveness; or
(ii) if the debt is a moneylending debt - the sum of the amount or amounts (if any) that the debtor has paid, the market value, at the time of the forgiveness, of the property (if any) that the debtor has given and the market value, at the time of the forgiveness, of the debtor's obligation to pay any amount or amounts or to give any property.
245-65(2)
Subject to subsection (2A), if a debt (other than a moneylending debt) to which subsection (1) applies is forgiven and:
(a) there is no consideration in respect of the forgiveness; or
(b) the whole or a part of the consideration in respect of the forgiveness cannot be valued; or
(c) the amount that, apart from this paragraph, would be taken to be the amount or value of the consideration in respect of the forgiveness is greater or less than the market value of the debt at the time of the forgiveness and the debtor and creditor were not dealing with each other at arm's length in connection with the forgiveness;the debtor is taken to have paid as consideration in respect of the forgiveness of the debt an amount equal to the market value of the debt at the time of the forgiveness.
HistoryS 245-65(2) amended by No 122 of 1997.
245-65(2A)
Subsection (2) does not apply in relation to a debt unless:
(a) at the time when the debt was forgiven the creditor was a resident; or
(b) the forgiveness of the debt was a CGT event involving a CGT asset that was taxable Australian property.HistoryS 245-65(2A) amended by No 168 of 2006 , s 3 and Sch 4 item 28, by substituting " that was taxable Australian property " for " having the necessary connection with Australia " in para (b), applicable to CGT events that happen on or after 12 December 2006.
S 245-65(2A) amended by No 46 of 1998; inserted by No 122 of 1997.
245-65(3)
In calculating for the purposes of paragraph 245-35(4)(e) the amount that would have been the net forgiven amount of an assigned debt referred to in that paragraph if that debt had been forgiven instead of being assigned:
(a) if the debt is 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 consideration in respect of the forgiveness of the debt is taken to be the market value of the debt at the time of the assignment; or
(b) in any other case - the consideration in the respect of the forgiveness of the debt is taken to be the sum of:
(i) the amount or value of the consideration (if any) that the debtor has paid or given, or is required to pay or give, to the creditor in respect of the assignment; and
(ii) the amount or value of the consideration (if any) paid or given by the new creditor in respect of the assignment.
245-65(4)
If a debt is forgiven by subscribing for shares in a company as mentioned in subsection 245-35(5) , the consideration in respect of the forgiveness of the debt is the amount worked out using the formula:
Amount applied × Market value of shares subscribed for Amount subscribed where:
amount applied means the amount applied by the company as mentioned in paragraph 245-35(5)(b) .
amount subscribed means the amount subscribed as mentioned in paragraph 245-35(5)(a) .
market value of shares subscribed for means the market value, of all the shares in the company that were subscribed for as mentioned in paragraph 245-35(5)(a) , immediately after those shares were issued.
SECTION 245-70 MONEY OR OTHER PROPERTY APPLIED FOR BENEFIT OF CREDITORHistoryS 245-65 inserted by No 76 of 1996.
245-70(1)
For the purposes of section 245-65 :
(a) money or property is taken to have been paid or given to a creditor if the money or property has been applied for the benefit, or in accordance with the directions, of the creditor; and
(b) a debtor is taken to be required to pay money or give property to a creditor if the debtor is required to apply money or property for the benefit, or in accordance with the directions, of the creditor.
245-70(2)
For the purposes of section 245-65 , a reference in subsection (1) to the application of money or property for the benefit of a creditor includes, without limiting the generality of the expression, a reference to the application of money or property in the discharge, wholly or partly, of a debt due by the creditor.HistoryArchived:
S 245-70(3) repealed as inoperative by No 101 of 2006 , s 3 and Sch 1 item 186, effective 14 September 2006. For application and savings provisions and for former wording see the CCH Australian Income Tax Legislation archive .
SECTION 245-75 GROSS FORGIVEN AMOUNT OF A DEBTHistoryS 245-70 inserted by No 76 of 1996.
245-75(1)
Subject to subsection (3), if no consideration is paid or given, or taken to be paid or given, in respect of the forgiveness of the debt, the gross forgiven amount of the debt is an amount equal to the notional value of the debt at the time when the debt was forgiven.HistoryS 245-75(1) amended by No 122 of 1997.
245-75(2)
Subject to subsection (3), if any consideration is paid or given, or taken to be paid or given, in respect of the forgiveness of the debt:
(a) where the notional value of the debt at the time when the debt was forgiven exceeds the consideration - the gross forgiven amount of the debt is an amount equal to the excess; or
(b) where the notional value of the debt at the time when the debt was forgiven is equal to or less than the consideration - there is no forgiven amount in respect of the debt and Subdivisions 245-D to 245-G do not apply in respect of the debt.HistoryS 245-75(2) amended by No 122 of 1997.
245-75(3)
If 2 or more persons were liable (otherwise than as partners in a partnership) to pay a debt, whether their liability was joint or several, or joint and several, the gross forgiven amount of the debt in relation to the person, or each of the persons, in respect of whom the debt was a commercial debt is the amount worked out using the formula:
Overall gross forgiven amount
Number of commercial debtorswhere:
overall gross forgiven amount
means the amount that would be the gross forgiven amount of the debt if all the persons liable to pay the debt were treated as a single person and the debt was a commercial debt in respect of that person.number of commercial debtors
means the number of persons liable to pay the debt in respect of whom the debt was a commercial debt.HistoryS 245-75(3) inserted by No 122 of 1997.
Subdivision 245-D - Calculation of net forgiven amount of a debt
Guide to Subdivision 245-DHistorySubdiv 245-D inserted by No 76 of 1996.
SECTION 245-80 WHAT THIS SUBDIVISION IS ABOUT
This Subdivision provides for the gross forgiven amount of a debt to be reduced in certain circumstances.
If the gross forgiven amount is not reduced under this Subdivision, the gross forgiven amount is also the net forgiven amount of the debt.
If the gross forgiven amount is reduced under this Subdivision, the amount remaining after the reduction is the net forgiven amount of the debt.
SECTION 245-81 MAP OF THIS SUBDIVISIONHistoryS 245-80 inserted by No 76 of 1996.
Operative provisionsHistoryS 245-81 inserted by No 76 of 1996.
SECTION 245-85 REDUCTION OF GROSS FORGIVEN AMOUNT
245-85(1)
The gross forgiven amount of a debt is reduced by the sum of any of the following amounts that apply in relation to the debtor:
(a) any amount that, under a provision of this Act other than this Division, has been, or will be, included in the debtor's assessable income of any year of income as a result of the forgiveness of the debt;
(b) any amount by which, under a provision of this Act other than this Division, a deduction that would otherwise be allowable from the debtor's assessable income of any year of income has been, or will be, reduced as a result of the forgiveness of the debt (except a reduction under Division 727 (indirect value shifting) of the Income Tax Assessment Act 1997 );
(c) any amount by which the cost base to the debtor of any asset for CGT purposes has been, or will be, reduced as a result of the forgiveness of the debt under Part 3-1 or 3-3 of the Income Tax Assessment Act 1997 (except a reduction under Division 139 of that Act).Note:
Paragraph (1)(c) does not cover a reduction under Division 727 (indirect value shifting) of the Income Tax Assessment Act 1997 because that Division is not in Part 3-1 or 3-3 of that Act.
HistoryS 248-85(1) amended by No 90 of 2002, No 169 of 1999 and No 46 of 1998.
245-85(2)
The amount remaining after reducing the gross forgiven amount under subsection (1) is:
(a) if section 245-90 does not apply - the net forgiven amount of the debt; or
(b) if section 245-90 applies - the provisional net forgiven amount of the debt.
SECTION 245-90 AGREEMENT BETWEEN COMPANIES UNDER COMMON OWNERSHIP FOR CREDITOR TO FORGO CAPITAL LOSS OR REVENUE DEDUCTIONHistoryS 245-85 inserted by No 76 of 1996.
245-90(1)
This section applies if:
(a) a debt owed by a company to another company is forgiven; and
(b) throughout the period from the time when the debt was incurred until the time when the debt is forgiven, the companies were under common ownership.
245-90(2)
If, apart from this subsection, the creditor would have incurred 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 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.HistoryS 245-90(2) amended by No 46 of 1998.
245-90(3)
If, apart from this subsection, a deduction in respect of the debt would be allowable to the creditor under section 8-1 (about general deductions) or section 25-35 (about bad debts) of the Income Tax Assessment Act 1997 in the forgiveness year of income:
(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 provisional net forgiven amount of the debt; and
(b) if such an agreement is made:
(i) the deduction otherwise allowable to the creditor 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.HistoryS 245-90(3) amended by No 121 of 1997.
245-90(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 the company that is the debtor and by the public officer of the company that is the creditor; and
(b) is made before whichever is the earlier of the following:
(i) the date of lodgment of the return of income for the forgiveness year of income of the company that is the creditor;or before any later date that the Commissioner determines.
(ii) the date of lodgment of the return of income for the forgiveness year of income of the company that is the debtor;
HistoryS 245-90 inserted by No 76 of 1996.
Subdivision 245-E - Application of net forgiven amounts
Guide to Subdivision 245-EHistorySubdiv 245-E inserted by No 76 of 1996.
SECTION 245-95 WHAT THIS SUBDIVISION IS ABOUT
This Subdivision provides for the total of the net forgiven amounts (the total net forgiven amount ) of all debts of a particular debtor that are forgiven in the same year of income (the forgiveness year of income ) to be applied in reduction of amounts that would otherwise be taken into account in assessing the debtor's taxable income of the forgiveness year of income or any later year of income.
This Subdivision does not apply to the calculation of attributable income of a non-resident trust estate or a controlled foreign company.
SECTION 245-96 MAP OF THIS SUBDIVISIONHistoryS 245-95 inserted by No 76 of 1996.
General operative provisionsHistoryS 245-96 inserted by No 76 of 1996.
SECTION 245-100 SECTION 245-100 SUBDIVISION NOT TO APPLY TO CALCULATION OF ATTRIBUTABLE INCOME
245-100
This Subdivision does not apply to the calculation of:
(a) attributable income of a non-resident trust estate for the purposes of Division 6AAA of Part III ; or
(b) attributable income of a controlled foreign company for the purposes of Part X.SECTION 245-105 HOW TOTAL NET FORGIVEN AMOUNT IS TO BE APPLIEDHistoryS 245-100 inserted by No 76 of 1996.
245-105(1)
Subject to subsection (2), the total of the net forgiven amounts of all debts of a debtor that are forgiven in the same year of income (the forgiveness year of income ) constitutes the total net forgiven amount in relation to the debtor in respect of the forgiveness year of income.Note:
The total net forgiven amount may be reduced under section 707-415 of the Income Tax Assessment Act 1997 .
HistoryS 245-105(1) amended by No 88 of 2009, s 3 and Sch 4 item 1, by inserting the note at the end, applicable on and after 1 July 2002.
245-105(2)
Section 245-215 has effect in calculating the total net forgiven amount of a partner in a partnership.
245-105(3)
Subdivision 245-G has effect in calculating the total net forgiven amount of a company that is included in a group of related companies.
245-105(4)
The total net forgiven amount is to be applied in accordance with this section before the debtor's return in respect of income of the forgiveness year of income is furnished to the Commissioner.
245-105(5)
The total net forgiven amount is to be applied first, in accordance with sections 245-110 to 245-120 , in reduction of deductible revenue losses (if any) incurred by the debtor in years of income before the forgiveness year of income.
245-105(6)
To the extent to which the total net forgiven amount cannot be applied as mentioned in subsection (5), it is to be applied, in accordance with sections 245-125 to 245-135 , in reduction of deductible net capital losses (if any) incurred by the debtor in respect of years of income before the forgiveness year of income.HistoryS 245-105(6) amended by No 93 of 1999.
245-105(7)
To the extent to which the total net forgiven amount cannot be applied as mentioned in subsections (5) and (6), it is to be applied, in accordance with sections 245-140 to 245-160 , in reduction of deductible expenditures (if any) that are to be taken into account in the assessment of the debtor's taxable income of the forgiveness year of income or any later year of income.
245-105(8)
To the extent to which the total net forgiven amount cannot be applied as mentioned in subsections (5), (6) and (7), it is to be applied, in accordance with sections 245-165 to 245-190 , in reduction of the relevant cost bases of certain assets of the debtor at the beginning of the forgiveness year of income.
Operative provisions relating to reduction of revenue lossesHistoryS 245-105 inserted by No 76 of 1996.
SECTION 245-110 SECTION 245-110 DEFINITIONS APPLICABLE TO PROVISIONS REDUCING REVENUE LOSSES
245-110
In sections 245-110 to 245-120:deductible revenue loss
means a loss:
(a) that is of a kind described in the table of deductible revenue losses; and
(b) in respect of which a deduction would, apart from this Subdivision, be allowable to the debtor in the forgiveness year of income or any later year of income if the debtor had derived sufficient assessable income in the year of income concerned (including sufficient assessable income from which the loss could be deducted).table of deductible revenue losses
means the following table:
Table of deductible revenue losses Item Column 1
General description
of lossesColumn 2
Provision under which
loss is deductible1 Tax losses Section 36-15 or 36-17 of the Income Tax Assessment Act 1997 2 (Repealed by No 143 of 2007 ) 3 (Repealed by No 143 of 2007 ) HistoryS 245-110 table amended by No 143 of 2007 , s 3 and Sch 1 item 127, by repealing items 2 and 3, applicable in relation to income years, statutory accounting periods and notional accounting periods starting on or after the first 1 July that occurs after 24 September 2007. For savings provisions, see note under s 559A . Table items 2 and 3 formerly read:
2 ... Foreign losses of pre-1990 years of income ... Subsection 160AFD(1)
3 ... Foreign losses of post-1989 years of income ... Subsection 160AFD(2)
SECTION 245-115 TOTAL NET FORGIVEN AMOUNT TO BE APPLIED IN REDUCTION OF REVENUE LOSSESHistoryS 245-110 amended by No 142 of 2003, No 121 of 1997 and inserted by No 76 of 1996.
245-115
The total net forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with section 245-120 , of deductible revenue losses (if any).SECTION 245-120 ALLOCATION OF TOTAL NET FORGIVEN AMOUNT IN RESPECT OF DEDUCTIBLE REVENUE LOSSESHistoryS 245-115 inserted by No 76 of 1996.
245-120(1)
The debtor may choose:
(a) the order in which the deductible revenue losses are to be reduced; and
(b) the amount by which each of those losses is to be reduced;provided that the total net forgiven amount is applied, to the maximum extent possible, in reduction of deductible revenue losses.
245-120(2)
If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.
Operative provisions relating to reduction of net capital lossesHistoryS 245-120 inserted by No 76 of 1996.
SECTION 245-125 DEFINITIONS APPLICABLE TO PROVISIONS REDUCING NET CAPITAL LOSSES
245-125
In sections 245-125 to 245-135:deductible net capital loss
means a net capital loss that:
(a) the debtor has for an income year earlier than the forgiveness year of income; and
(b) apart from this Subdivision, could be applied in working out the debtor's net capital gain for the forgiveness year of income (assuming the debtor had enough capital gains).HistoryDefinition of " deductible net capital loss " substituted by No 46 of 1998 and amended by No 95 of 1997.
residual forgiven amount
means the total net forgiven amount to the extent to which it has not been applied in making reductions of deductible revenue losses.SECTION 245-130 RESIDUAL FORGIVEN AMOUNT TO BE APPLIED IN REDUCTION OF NET CAPITAL LOSSESHistoryS 245-125 inserted by No 76 of 1996.
245-130
The residual forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with section 245-135 , of deductible net capital losses (if any).SECTION 245-135 ALLOCATION OF RESIDUAL FORGIVEN AMOUNT IN RESPECT OF DEDUCTIBLE NET CAPITAL LOSSESHistoryS 245-130 inserted by No 76 of 1996.
245-135(1)
The debtor may choose:
(a) the order in which the deductible net capital losses are to be reduced; and
(b) the amount by which each of those losses is to be reduced;provided that the residual forgiven amount is applied, to the maximum extent possible, in reduction of deductible net capital losses.
245-135(2)
If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.
Operative provisions relating to reduction of deductible expenditureHistoryS 245-135 inserted by No 76 of 1996.
SECTION 245-140 DEFINITIONS APPLICABLE TO PROVISIONS REDUCING DEDUCTIBLE EXPENDITURE
245-140(1)
In sections 245-140 to 245-160:deductible expenditure
means expenditure (other than excluded expenditure):
(a) that is of a kind referred to in the table of deductible expenditure and was incurred before the forgiveness year of income; and
(b) in respect of which a deduction would, apart from this Subdivision, be allowable to the debtor in respect of income of the forgiveness year of income or a later year of income if no event or circumstance (other than a recoupment of the expenditure in the forgiveness year of income) occurred that would affect the allowance of the deduction.excluded expenditure
has the meaning given by subsections (2), (3) and (4).residual forgiven amount
means the total net forgiven amount to the extent to which it has not been applied in making reductions of deductible revenue losses and deductible net capital losses.table of deductible expenditure
means the following table.
Table of deductible expenditure Column 1 Column 2 Item General description of expenditure Provision under which a deduction is allowable in respect of the expenditure 1 (Repealed by No 101 of 2006 ) 2 Expenditure deductible under Division 40 (capital allowances) of the Income Tax Assessment Act 1997 Division 40 of that Act 3 (Repealed by No 101 of 2006 ) 4 Expenditure incurred in borrowing money to produce assessable income Section 25-25 of the Income Tax Assessment Act 1997 5 (Repealed by No 101 of 2006 ) 6 (Repealed by No 101 of 2006 ) 7 Expenditure on scientific research Subsection 73A(2) 8 Expenditure deductible under Division 355 (R & D) of the Income Tax Assessment Act 1997 Division 355 of that Act 9 to 13 (Repealed by No 101 of 2006 ) 14 Advance revenue expenditure Subdivision H of Division 3 of Part III 15 to 19 (Repealed by No 101 of 2006 ) 20 Expenditure on acquiring a unit of industrial property to produce assessable income Subsection 124M(1) 21 (Repealed by No 101 of 2006 ) 22 Expenditure on Australian films Section 124ZAF 23 Expenditure on assessable income producing buildings and other capital
worksSection 43-10 of the Income Tax Assessment Act 1997 24 and 25 (Repealed by No 101 of 2006 ) Archived:
S 245-140(1) (table items 1, 3, 5, 6, 9 to 13, 15 to 19, 21, 24 and 25) repealed as inoperative by No 101 of 2006 , s 3 and Sch 1 item 187, effective 14 September 2006. For application and savings provisions and for former wording see the CCH Australian Income Tax Legislation archive .
HistoryS 245-140(1) amended by No 164 of 2007 , s 3 and Sch 11 item 47, by substituting " , 73QA and 73QB " for " and 73Y " in column 2, table item 8 of the definition of " table of deductible expenditure " , effective 25 September 2007. For application provision, see note under s 73B(1AAA) .
S 245-140(1) (table) amended by No 170 of 2001, No 77 of 2001, No 169, No 54 and No 39 of 1999, No 46 of 1998, No 122 and No 121 of 1997.
HistoryArchived:
S 245-140(1A) repealed as inoperative by No 101 of 2006 , s 3 and Sch 1 item 188, effective 14 September 2006. For application and savings provisions and for former wording see the CCH Australian Income Tax Legislation archive .
245-140(2)
Expenditure is excluded expenditure if:
(a) it was incurred in respect of an asset that has been disposed of by the debtor to a person who was dealing at arm's length with the debtor in respect of the disposal; and
(b) the disposal occurred during the forgiveness year of income before the forgiveness of any debt owed by the debtor, being a forgiveness that resulted in a net forgiven amount; and
(c) no provision of this Act includes an amount in the debtor's assessable income, or allows a deduction to the debtor, as a result of the disposal.
245-140(3)
Expenditure is excluded expenditure if the asset in respect of which the expenditure was incurred was disposed of by the debtor, or was lost or destroyed, on or before the commencement day.
245-140(4)
Expenditure is excluded expenditure to the extent (if any) to which the expenditure was recouped on or before the commencement day.
SECTION 245-145 RESIDUAL FORGIVEN AMOUNT TO BE APPLIED IN REDUCTION OF DEDUCTIBLE EXPENDITURESHistoryS 245-140 inserted by No 76 of 1996.
245-145
The residual forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with sections 245-150 and 245-155 , of deductible expenditures (if any).SECTION 245-150 ALLOCATION OF RESIDUAL FORGIVEN AMOUNT IN RESPECT OF DEDUCTIBLE EXPENDITURESHistoryS 245-145 inserted by No 76 of 1996.
245-150(1)
The debtor may choose:
(a) the order in which deductible expenditures are to be subject to reduction; and
(b) the amount to be applied in reduction of each of those expenditures;provided that the residual forgiven amount is applied, to the maximum extent possible, in reduction of deductible expenditures.
245-150(2)
If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.
SECTION 245-155 HOW A REDUCTION OF A DEDUCTIBLE EXPENDITURE IS TO BE EFFECTEDHistoryS 245-150 inserted by No 76 of 1996.
245-155(1)
The following paragraphs apply in respect of the reduction of any deductible expenditure if the deduction that would be allowable to the debtor, apart from this Subdivision, in respect of the deductible expenditure is a percentage, fraction or proportion of an amount (the base amount ) that is worked out without regard to any amount or amounts previously allowed as a deduction or deductions in respect of the deductible expenditure:
(a) any amount that is to be applied in reduction of the deductible expenditure is taken to reduce the base amount for the purpose of working out the deduction in respect of the forgiveness year of income and later years of income;
(b) the amount of the reduction is taken to have been a deduction allowed to the debtor in respect of the deductible expenditure before the forgiveness year of income for the purposes of the operation of any provision of this Act that includes an amount in the debtor's assessable income or allows a deduction to the debtor:
(i) because of the disposal, loss or destruction of the asset in respect of which the deductible 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,as the case may be;
(iv) because a balancing adjustment event within the meaning of the former Division 42, or Division 40 of the Income Tax Assessment Act 1997 occurs for that asset;
(c) the total amount of the deductions allowed or allowable otherwise than under paragraph (b) in respect of the deductible expenditure for all years of income (including years of income before the forgiveness year of income) must not exceed the base amount as reduced under paragraph (a).HistoryS 245-155(1) amended by No 77 of 2001 and No 121 of 1997.
245-155(2)
If the deduction that would be allowable to the debtor, apart from this Subdivision, in respect of any deductible expenditure is a percentage, fraction or proportion of an amount that is worked out after taking into account any amount or amounts previously allowed as a deduction or deductions in respect of the deductible expenditure, any amount to be applied in reduction of the deductible expenditure is taken to have been a deduction allowed to the debtor in respect of the deductible expenditure before the forgiveness year of income.
SECTION 245-160 AMOUNT APPLIED IN REDUCTION OF DEDUCTIBLE EXPENDITURE TO BE INCLUDED IN ASSESSABLE INCOME IN CERTAIN CIRCUMSTANCESHistoryS 245-155 inserted by No 76 of 1996.
245-160
If:
(a) an amount of deductible expenditure is recouped after the forgiveness year of income; and
(b) as a result of the recoupment, this Act applies to disallow any deduction previously allowed to the debtor 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 deductible expenditure is included in the debtor's assessable income of the year of income in which the expenditure is recouped.
Operative provisions relating to reduction of cost bases of assetsHistoryS 245-160 inserted by No 76 of 1996.
SECTION 245-165 DEFINITIONS APPLICABLE TO PROVISIONS REDUCING COST BASES
245-165(1)
In sections 245-165 to 245-190:excluded asset
has the meaning given by section 245-170 .reducible asset
means a CGT asset (other than an excluded asset) of the debtor at the beginning of the forgiveness year of income.HistoryDefinition of " reducible asset " amended by No 46 of 1998.
relevant cost base
, in relation to a CGT asset, means the cost base or the reduced cost base, of the asset.HistoryDefinition of " relevant cost base " amended by No 46 of 1998.
residual forgiven amount
means the total net forgiven amount to the extent to which it has not been applied in making reductions of deductible revenue losses, deductible net capital losses and deductible expenditures.
245-165(2)
(Repealed by No 46 of 1998)
SECTION 245-170 EXCLUDED ASSETSHistoryS 245-165 inserted by No 76 of 1996.
245-170
The following CGT assets of a debtor are excluded assets:
(a) a CGT asset acquired by the debtor before 20 September 1985;
(b) a CGT asset that the debtor no longer owned at the end of the commencement day;
(c) a personal use asset (within the meaning of the Income Tax Assessment Act 1997 );
(d) a dwelling (within the meaning of the Income Tax Assessment Act 1997 ) that was the debtor's main residence at any time before the forgiveness year of income;
(e) goodwill;
(f) a right covered by section 118-305 of the Income Tax Assessment Act 1997 (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 year when it was owned by the debtor, constituted trading stock of the debtor;
(h) a CGT asset:
(i) the cost of which is deductible expenditure in relation to the debtor under section 245-140 ; and
(ii) a CGT event in relation to which would result in an amount being included in the debtor's assessable income, or in the debtor being able to deduct an amount; and
(i) if the debtor is a non-resident at the beginning of the forgiveness year of income - an asset that is not a taxable Australian asset.SECTION 245-175 RESIDUAL FORGIVEN AMOUNT TO BE APPLIED IN REDUCTION OF COST BASES OF ASSETSHistoryS 245-170 amended by No 46 of 1998 and inserted by No 76 of 1996.
245-175
The residual forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with sections 245-180 to 245-190 , of the relevant cost bases of reducible assets (if any).SECTION 245-180 ALLOCATION OF RESIDUAL FORGIVEN AMOUNT AMONG RELEVANT COST BASES OF ASSETSHistoryS 245-175 inserted by No 76 of 1996.
245-180(1)
Subject to section 245-185 , the debtor may choose:
(a) the reducible assets whose relevant cost bases are to be subject to reduction; and
(b) the amount to be applied in reduction of the relevant cost base of each of those assets;provided that the residual forgiven amount is applied, to the maximum extent possible, in reduction of the relevant cost bases of reducible assets.
245-180(2)
If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.
SECTION 245-185 RELEVANT COST BASES OF INVESTMENTS IN ASSOCIATED ENTITIES TO BE REDUCED LASTHistoryS 245-180 inserted by No 76 of 1996.
245-185(1)
If a debtor's reducible assets include investments in, or in relation to, entities that are associates of the debtor, the relevant cost bases of those investments are not subject to reduction under section 245-175 until the residual forgiven amount has been applied, to the maximum extent possible, in reduction of the relevant cost bases of reducible assets other than such investments.
245-185(2)
In this section:entity
means a natural person, a partnership, a trustee of a trust or a company.investment
includes:
(a) in respect of an entity that is a partnership - an interest as a partner in a partnership; and
(b) in respect of an entity that is a trustee of a trust - a beneficial interest under the trust; and
(c) in respect of an entity that is a company - a share in the company; and
(d) in respect of any entity - a debt owed to the debtor by the entity.
SECTION 245-190 HOW A REDUCTION OF THE RELEVANT COST BASES OF AN ASSET IS TO BE EFFECTEDHistoryS 245-185 inserted by No 76 of 1996.
245-190(1)
Subject to subsection (3), if the debtor chooses to apply an amount in reduction of the relevant cost bases of a particular CGT asset, each relevant cost base of the asset, as at any time on or after the beginning of the forgiveness year of income, is taken to be reduced by that amount.HistoryS 245-190(1) amended by No 46 of 1998.
245-190(2)
The reduction by a particular amount of each of the relevant cost bases of a particular CGT asset is, for the purpose of working out the amount by which the residual forgiven amount is applied in making the reduction, taken to be a reduction in that residual forgiven amount by the particular amount (and not by the sum of the amounts by which those cost bases are reduced).HistoryS 245-190(2) amended by No 46 of 1998.
245-190(3)
The maximum amount by which each of the relevant cost bases 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 year of income; or
(b) if, after the beginning of that year of income, 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 to have been so disposed of at its market value on the day concerned.
HistoryS 245-190(3) amended by No 46 of 1998 and substituted by No 122 of 1997.
S 245-190 inserted by No 76 of 1996.
Operative provision relating to unapplied total net forgiven amount
SECTION 245-195 NO FURTHER CONSEQUENCES IF THERE IS ANY REMAINING UNAPPLIED TOTAL NET FORGIVEN AMOUNT
245-195(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.
245-195(2)
This section has effect subject to section 245-215 .
HistoryS 245-195 inserted by No 76 of 1996.
Subdivision 245-F - Special rules relating to partnerships
Guide to Subdivision 245-FHistorySubdiv 245-F inserted by No 76 of 1996.
SECTION 245-200 WHAT THIS SUBDIVISION IS ABOUT
This Subdivision provides that the preceding Subdivisions apply to a partnership in relation to debts owed by the partnership that are forgiven.
However, if the total net forgiven amount in relation to a partnership is not able to be fully applied under those provisions as they apply to the partnership, the remainder is treated as being net forgiven amounts of debts of the partners in proportion to their respective shares in the net income, or the partnership loss, of the partnership of the forgiveness year of income.
SECTION 245-201 MAP OF THIS SUBDIVISIONHistoryS 245-200 inserted by No 76 of 1996.
Operative provisionsHistoryS 245-201 inserted by No 76 of 1996.
SECTION 245-205 THIS SUBDIVISION DOES NOT APPLY TO CORPORATE LIMITED PARTNERSHIPS
245-205(1)
This Subdivision does not apply to a corporate limited partnership.
245-205(2)
This Division, other than this Subdivision, applies to a corporate limited partnership as if the partnership were a company.
245-205(3)
In this section:corporate limited partnership
has the meaning given by section 94D .
SECTION 245-210 SUBDIVISIONS 245-A TO 245-E TO APPLY TO PARTNERSHIPSHistoryS 245-205 inserted by No 76 of 1996.
245-210(1)
Subdivisions 245-A to 245-D apply to a partnership in respect of the partnership's debts, and references in those Subdivisions to a debtor include a reference to a partnership in respect of the partnership's debts.
245-210(2)
Subject to section 245-215 , Subdivision 245-E applies to a partnership in respect of the total net forgiven amount calculated in relation to the partnership under Subdivisions 245-A to 245-D as they apply under subsection (1).
SECTION 245-215 UNAPPLIED TOTAL NET FORGIVEN AMOUNT OF A PARTNERSHIP TO BE TRANSFERRED TO PARTNERSHistoryS 245-210 inserted by No 76 of 1996.
245-215(1)
This section has effect in relation to a partnership irrespective of any agreement between the partners as to the operation of this section.
245-215(2)
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 year of income remains after the total net forgiven amount has been applied in accordance with Subdivision 245-E .
245-215(3)
If there is a net income in relation to the partnership in respect of the forgiveness year of income, each partner is taken to have had a debt forgiven during the forgiveness year of income and 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:
Partner ' s share of net income × Residual amount Net income
245-215(4)
If there is a partnership loss in relation to the partnership in respect of the forgiveness year of income, each partner is taken to have had a debt forgiven during the forgiveness year of income and 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:
Partner ' s share of partnership loss × Residual amount Partnership loss
245-215(5)
In the formulas in subsections (3) and (4):partner's share of net income means the part of the net income of the partnership of the forgiveness year of income that is included in the partner's assessable income.
partner's share of partnership loss means the part of the partnership loss that is allowable as a deduction to the partner.
net income means the net income of the partnership of the forgiveness year of income.
partnership loss means the partnership loss of the forgiveness year of income.
residual amount has the meaning given by subsection (2).
245-215(6)
The total net forgiven amount of a partner for the forgiveness year of income as worked out under subsection 245-105(1) includes the net forgiven amount worked out in relation to the partner under this section.
HistoryS 245-215 inserted by No 76 of 1996.
Subdivision 245-G - Special rules affecting related companies
Guide to Subdivision 245-GHistorySubdiv 245-G inserted by No 76 of 1996.
SECTION 245-220 WHAT THIS SUBDIVISION IS ABOUT
This Subdivision applies in certain circumstances if, at the time when a debt incurred by a company is forgiven, the company and another company or other companies constituted a group of related companies.
The forgiven amount of the debt is treated in those circumstances as having been used to generate amounts that would otherwise be taken into account in reducing the taxable incomes of the debtor company and other company or companies in the group.
SECTION 245-221 MAP OF THIS SUBDIVISIONHistoryS 245-220 inserted by No 76 of 1996.
Operative provisionsHistoryS 245-221 inserted by No 76 of 1996.
SECTION 245-225 APPLICATION OF SUBDIVISION
245-225(1)
This Subdivision applies in respect of a debt (the relevant debt ) incurred by a company (the debtor company ) if, and only if:
(a) the relevant debt has been forgiven; and
(b) there is a net forgiven amount in respect of the relevant debt; and
(c) the debtor company and another company or other companies constitute a group of related companies in respect of the relevant debt.
245-225(2)
The debtor company and another company or other companies constitute a group of related companies in respect of the relevant debt for the purposes of this section if the companies concerned were under common ownership:
(a) at the time when the relevant debt was forgiven; and
(b) at any time on the last day of the year of income that immediately preceded the forgiveness year of income in respect of the relevant debt.
245-225(3)
If:
(a) the debtor company and another company were not under common ownership at the times mentioned in subsection (2); and
(b) the 2 companies had been under common ownership at any time within:
(i) the 2 years of income that immediately preceded the forgiveness year of income in respect of the relevant debt; or
(ii) the part of the forgiveness year of income that occurred before the relevant debt was forgiven; andthe other company is taken to be included in the group of related companies referred to in subsection (2) in respect of the relevant debt if:
(c) a taxpayer who was a controller of the other company immediately before, and immediately after, the 2 companies ceased to be under common ownership was also:
(i) a controller of the other company at the time when the relevant debt was forgiven; and
(ii) a controller of the debtor company at that time; or
(d) immediately before, and immediately after, the 2 companies ceased to be under common ownership and at the time when the relevant debt was forgiven:
(i) the debtor company was a controller of the other company; or
(ii) the other company was a controller of the debtor company.HistoryS 245-225(3) amended by No 122 of 1997.
S 245-225 inserted by No 76 of 1996.
SECTION 245-230 IF ANY NON-DEBTOR COMPANIES IN A GROUP OF RELATED COMPANIES HAVE DEDUCTIBLE REVENUE LOSSES
245-230(1)
This section applies in relation to the relevant debt if, and only if, any one or more of the non-debtor companies in the group of related companies in respect of the relevant debt have deductible revenue losses for the purposes of the application of this Division in relation to the forgiveness year of income in respect of the relevant debt (the relevant year of income ).
245-230(2)
The net forgiven amount of the relevant debt (the disregarded net forgiven amount ) is disregarded for the purposes of this Division other than this Subdivision.
245-230(3)
However, each company in the group that has deductible revenue losses for the purposes mentioned in subsection (1) (including the debtor company if it has deductible revenue losses for those purposes) is taken to have had a debt forgiven during the relevant year of income and there is taken to be, in respect of each such debt, a net forgiven amount worked out in accordance with the following formula:
Company ' s deductible
revenue losses× Disregarded net forgiven
amountTotal deductible
revenue losseswhere:
company's deductible revenue losses means the total of the company's deductible revenue losses for the purposes of the application of this Division in relation to the relevant year of income.
total deductible revenue losses means the total of the deductible revenue losses of all the companies in the group of related companies for the purposes of the application of this Division in relation to the relevant year of income.
245-230(4)
In this section:deductible revenue loss of a company does not include an amount of a tax loss transferred to the company by another company if the other company incurred the tax loss in the relevant year of income.
Note:
Subdivision 170-A of the Income Tax Assessment Act 1997 provides for the transfer of tax losses within wholly-owned groups of companies.
HistoryS 245-230(4) substituted by No 16 of 1998 and inserted by No 122 of 1997.
SECTION 245-235 IF ANY NON-DEBTOR COMPANIES IN A GROUP OF RELATED COMPANIES HAVE DEDUCTIBLE NET CAPITAL LOSSES
245-235(1)
This section applies in relation to the relevant debt if, and only if, for the purposes of the application of this Division in relation to the forgiveness year of income in respect of the relevant debt (the relevant year of income ):
(a) none of the companies in the group of related companies in respect of the relevant debt have deductible revenue losses; but
(b) any one or more of the non-debtor companies in the group of related companies in respect of the relevant debt have deductible net capital losses.
245-235(2)
The net forgiven amount of the relevant debt (the disregarded net forgiven amount ) is disregarded for the purposes of this Division other than this Subdivision.
245-235(3)
However, each company in the group that has deductible net capital losses for the purposes mentioned in subsection (1) (including the debtor company if it has deductible net capital losses for those purposes) is taken to have had a debt forgiven during the relevant year of income and there is taken to be, in respect of each such debt, a net forgiven amount worked out in accordance with the following formula:
Company ' s deductible
net capital losses× Disregarded net forgiven
amountTotal deductible
net capital losseswhere:
company's deductible net capital losses means the total of the company's deductible net capital losses for the purposes of the application of this Division in relation to the relevant year of income.
total deductible net capital losses means the total of the deductible net capital losses of all the companies in the group of related companies for the purposes of the application of this Division in relation to the relevant year of income.
SECTION 245-240 IF NEITHER SECTION 245-230 NOR 245-235 APPLIESHistoryS 245-235 inserted by No 76 of 1996.
245-240
If neither section 245-230 nor 245-235 applies in respect of the relevant debt, this Subdivision does not affect the application of the preceding Subdivisions in relation to the net forgiven amount of the debt.HistoryS 245-240 inserted by No 76 of 1996.
Subdivision 245-H - General
SECTION 245-245 DEFINITIONSHistorySubdiv 245-H inserted by No 76 of 1996.
245-245(1)
In this Division, unless the contrary intention appears:associate
has the meaning given by section 318 .commencement day
means the day on which this Schedule commences.debt
includes a part of a debt.debtor company
, in relation to a group of companies that are related companies in respect of a debt incurred by one of those companies, means the company in the group that incurred the debt.deductible net capital loss
, subject to subsection (2), has the meaning given by section 245-125 .deductible revenue loss
, subject to subsection (2), has the meaning given by section 245-110 .extinguished
, in relation to a debt, does not include payment of the whole of the debt in cash.forgive
, in relation to a debt, has the meaning given by section 245-35 .forgiveness year of income
has the meaning given by subsection 245-105(1) .moneylending debt
means a debt resulting from a loan of money to the debtor made by the creditor in the ordinary course of a business of lending money carried on by the creditor.net forgiven amount
, in relation to a debt, has the meaning given by Subdivision 245-D .non-debtor company
, in relation to a group of companies that are related companies in respect of a debt incurred by one of those companies, means a company in the group other than the company that incurred the debt.pay
includes repay.related group of companies
has the meaning given by section 245-225 .total net forgiven amount
, in relation to a debtor in respect of a forgiveness year of income, has the meaning given by subsection 245-105(1) .
245-245(2)
In determining for the purposes of this Division whether a non-debtor company in a group of companies that are related companies in respect of a debt has a deductible revenue loss or a deductible net capital loss , the relevant definitions of those expressions as set out in sections 245-110 and 245-125 , respectively, are to be applied as if the company were the debtor company.
SECTION 245-250 COMPANIES UNDER COMMON OWNERSHIPHistoryS 245-245 inserted by No 76 of 1996.
245-250
For the purposes of this Division, the question whether 2 companies were under common ownership at a particular time is to be determined in the same way as that question would be determined under the definition of under common ownership in subsection 995-1(1) of the Income Tax Assessment Act 1997 .SECTION 245-255 CONTROLLER OF COMPANYHistoryS 245-250 amended by No 90 of 2002, No 94 of 1999 and inserted by No 76 of 1996.
245-255
For the purposes of this Division, the question whether a taxpayer was a controller of a company at a particular time is to be determined in the same way as the question whether an entity is a controller (for CGT purposes) of a company is determined under section 140-20 of the Income Tax Assessment Act 1997 .SECTION 245-260 TIME OF INCURRING DEBTHistoryS 245-255 amended by No 46 of 1998 and inserted by No 76 of 1996.
245-260(1)
Subject to subsection (2), if a debt resulted from the debtor's drawing from time to time on an established line of credit, the debt is taken, for the purposes of this Division, to have been incurred at the time when the debtor first drew on the line of credit.
245-260(2)
If, at any time after a debtor made a drawing or drawings on a line of credit, the debtor repaid the only previous drawing or all the previous drawings, as the case may be, the reference in subsection (1) to the time when the debtor first drew on the line of credit is taken to be a reference to the time of the first drawing after the repayment.
SECTION 245-265 KEEPING AND RETENTION OF RECORDSHistoryS 245-260 inserted by No 76 of 1996.
245-265(1)
A person (the debtor ) who incurs a commercial debt must keep any records that are necessary to enable the following matters to be readily found out:
(a) the date on which the debt was incurred;
(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 the debtor and the creditor were not dealing with each other at arm's length in respect of the incurring of the debt - the debtor's capacity at the time when the debt was incurred to pay the debt when it falls due;
(f) if the debtor's obligation to pay the debt is forgiven - the date of the forgiveness and the consideration (if any) in respect of the forgiveness.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 .
HistoryS 245-265(1) amended by No 91 of 2000.
245-265(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 person who was a controller of the company immediately before the companies ceased to be under common ownership;
(c) the identity of each person who was a controller of the company immediately after the companies ceased to be under common ownership.
245-265(3)
A person who is required by subsection (1) or (2) to keep records must keep them in writing in the English language or so as to enable them to be readily accessible and convertible into writing in the English language.
245-265(4)
Subject to subsection (5), a person who keeps any records, relating to a debt incurred by the person, as required by subsection (1) must retain the records until:
(a) if paragraph (b) does not apply - the end of 5 years after the debt was forgiven; or
(b) if the period (the assessment period ) within which the Commissioner may, under section 170 , amend an assessment in respect of the person's income of the year of income 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) :
(i) the end of the period of 5 years referred to in paragraph (a); orwhichever is the later.
(ii) the end of the assessment period as so extended;HistoryS 245-265(4) amended by No 161 of 2005.
245-265(5)
Subsection (4) does not require records in respect of a debt that has been wholly paid in cash to be retained after the debt was so paid.
245-265(6)
Subject to subsection (7), each company referred to in subsection (2) that keeps any records relating to the company as required by subsection (2) must retain the records until the end of the second year of income after the year of income in which the company and the other company referred to in subsection (2) ceased to be under common ownership.
245-265(7)
If a debt of one of the companies referred to in subsection (2) was forgiven at any time after the companies ceased to be under common ownership and before the end of the second year of income after the year of income in which the cessation occurred, each of the companies that keeps any records relating to the company as required by that subsection must retain the records until:
(a) if paragraph (b) does not apply - the end of 5 years after the debt was forgiven; or
(b) if the period (the assessment period ) within which the Commissioner may, under section 170 , amend an assessment in respect of the company's income of the year of income 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) :
(i) the end of the period of 5 years referred to in paragraph (a); orwhichever is the later.
(ii) the end of the assessment period as so extended;HistoryS 245-265(7) amended by No 161 of 2005.
245-265(8)
A person who contravenes a provision of this section is guilty of an offence punishable on conviction by a penalty of not more than 30 penalty units.HistoryS 245-265(8) amended by No 146 of 2001.
245-265(8A)
Subsection (8) does not apply to the extent that the person has a reasonable excuse.Note:
A defendant bears an evidential burden in relation to the matters in subsection (8A), see subsection 13.3(3) of the Criminal Code .
HistoryS 245-265(8A) inserted by No 146 of 2001.
245-265(9)
This section does not limit the application of any other provision of this Act relating to the keeping or retention of records.
HistoryS 245-265 inserted by No 76 of 1996.
Sch 2C inserted by No 76 of 1996.
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