The commissioner has been called to provide greater clarity over various circumstances dealing with its new interpretation of commercial debt forgiveness rules.
Commissioner called to explain changes to position on commercial debt forgiveness
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.
“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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