Private ruling: Business - Debt forgiveness
Published: September 2012
Ruling period: 1 July 2012 to 30 June 2012

Ruling: Q1: Do the Commercial Debt forgiveness provisions, under section 245-40 of the Income Tax Assessment Act 1997 , apply when a shareholder gifts their credit loan account to a family member/director of the company out of love and affection? | A1: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The shareholders of the company are transitioning out of the company and handing the company over to a family member. One of the company shareholders wants to gift their credit loan account, out of love and affection, in the company to the family member who is also a director of the company. The family member and director of the company do not have a debt with the company.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 245-40 | Income Tax Assessment Act 1997 subsection 245-40(e)

Reasons for decision: Summary: Division 245 of the Income Tax Assessment Act 1997 (ITAA 1997) relates to the forgiveness of commercial debts. Section 245-40 of the ITAA 1997 lists specific circumstances where the forgiveness of debt will not come within the operation of Division 245 of the ITAA 1997. An exclusion to Division 245 applies, under section 245-40(e) of the ITAA 1997, where a commercial debt is forgiven for reasons of natural love and affection. | Detailed Reasoning - Application to your circumstances: The shareholder of a company wants to gift their credit loan account to a family member who is also the director of the company out of love and affection. The director does not have a debt with the company. There is no commercial debt forgiveness in this situation. Therefore, the commercial debt forgiveness provisions under section 245-40 of the ITAA 1997 will not apply.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.