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The commissioner has been called to provide greater clarity over various circumstances dealing with its new interpretation of commercial debt forgiveness rules.
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Commissioner called to explain changes to position on commercial debt forgiveness
11 November 2019
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Last month, the Commissioner of Taxation released Draft Taxation Determination 2019/D9, close to eight months after it withdrew ATO ID 2003/589 on 6 February.
The Draft TD details the change in the commissioner’s view that the exclusion for debts forgiven for reasons of natural love and affection requires that the creditor be a natural person.
According to the ATO, this now means that “the creditor cannot be a company or an individual acting in the capacity of a trustee”.
In its submission to the ATO, the Tax Institute has called for a detailed discussion, preferably in the form of a public ruling, noting that the Draft TD deals with the matter “very narrowly”.
The Tax Institute believes the commissioner should consider circumstances where the creditor is a natural person, where the creditor is a company, and where the debt is forgiven in the context of a partnership.
A circumstance where debt is forgiven in the context of a trust relationship, considering the variations between when the trustee is a natural person and when the trustee is a corporate trustee, should also be considered, said the Tax Institute.
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“In particular, such guidance should explore in more detail which parties the ‘natural love and affection’ is between — e.g. debtor and company, debtor and shareholder(s) of the company, trustee and debtor etc,” said the submission.
“This is particularly necessary given that up until 6 February 2019, the commissioner accepted that a company could forgive a debt for reasons of natural love and affection, though upon the application of the Draft TD, this is no longer the case.
“We also believe a much more detailed exploration of the issues is required given the complex nature of human and business relationships.”
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