Commercial debt forgiveness is a concept in Australian tax law that addresses the tax consequences when a creditor forgives a debt owed by a debtor. These rules, contained in Div 245 of the Income Tax Assessment Act 1997, aim to prevent duplication of tax benefits that could otherwise arise when a commercial debt is forgiven.
This article explains the purpose of these provisions, how they operate, the calculation of the net forgiven amount, the order of application, special rules and exclusions, and practical implications for businesses.
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Why do the commercial debt forgiveness rules exist?
When a commercial debt is forgiven, the creditor may claim a tax deduction or a capital loss for the amount written off. At the…