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