Debt forgiveness and Capital gains tax

Are you? – A taxpayer whose commercial debt has been forgiven?

At a glance: – Forgiveness of a commercial debt can give rise to a capital gain.’

You should:  – Be aware of the capital gains tax consequences of a forgiven commercial debt.
– Contact us if you require any clarification or advice

A debt is forgiven if the taxpayer is freed from the obligation to pay it. If the debt was forgiven after 27 June 1996, Commercial debt forgiveness rules will apply.

A commercial debt is a debt if part or all the interest payable on the debt is, or would be, an allowable deduction.

Under the commercial debt forgiveness rules, a forgiven amount may reduce (in the following order) the taxpayer’s:

• prior income year revenue losses
• net capital losses from earlier years
• deductible expenditure
• cost base and reduced cost base of assets

Commercial debt forgiveness rules does not apply if the following situations happen:

• the debt is forgiven as a result of an action under bankruptcy law;
• the debt is forgiven in a deceased person’s will;
• the debt is forgiven for reasons of natural love and affection;
• the debt is waived and the waiver constitutes a fringe benefit
• the amount of debt has been, or will be included in your assessable income in any income year
• the debt is a tax-related liability.

To find out more, click here.

Remember: – the time for the forgiveness is important and be sure that the debt forgiven is considered as commercial debt.

This article was published on 31/08/2018 and is current as at that date