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03 Oct 2019 Determinations

TD 2019/D9 Income tax: commercial debt forgiveness - does the exclusion for debts forgiven for reasons of natural love and affection require that the creditor be a natural person?

The commercial debt forgiveness rules apply where a creditor forgives a commercial debt owing by a debtor. 

These rules remove any tax benefit a taxpayer may obtain through the effective duplication of tax deductions that would otherwise arise from the forgiveness. 

Duplication could occur where, for example, the creditor claims a tax deduction for the forgiveness and the debtor does not include the benefit from the forgiveness as assessable income. 

There are certain exclusions to the operation of the commercial debt forgiveness rules. One of these exclusions is when the forgiveness is made for reasons of natural love and affection.

Draft Taxation Determination TD 2019/D9 provides that a creditor must be a natural person to forgive a debt for reasons of natural love and affection. This means, for example, that the creditor cannot be a company or an individual acting in the capacity of a trustee. 

Find out more about debt forgiveness here.

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