On 6 February 2019, the Australian Taxation Office (ATO) withdrew its long-standing Interpretative Decision 2003/589 that a company can forgive a debt owed by a natural person for reasons of “natural love and affection” and not trigger consequences under the commercial debt forgiveness rules.

In Private Rulings the ATO has applied an analogous approach to that in ATO ID 2003/589 in many circumstances within a family group. For example, a trustee forgiving a debt owed by a beneficiary or a company forgiving a trustee.

However, while the commercial debt forgiveness rules in Division 245 have a “natural love and affection” exception to which ATO ID 2003/589 related, that exception does not apply to the debt forgiveness provisions in Division 7A.

The ATO gave no reasons for the withdrawal other than ATO ID 2003/589 no longer represents the ATO view and that it is developing “guidance” on this issue. The ATO has for many years been developing guidance on section 100A including the “ordinary family and commercial dealing” exception to that provision.

Whether the withdrawal of ATO ID 2003/589 may be a step in a process of coming to a uniform view on dealings within family groups within Division 245, section 100A, and other provisions (including Part IVA) is an unanswered question.

For more information please contact:

Neil Brydges
Principal Lawyer | Accredited specialist in Tax Law
Sladen Legal
M +61 407 821 157 | T +61 3 9611 0176
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: nbrydges@sladen.com.au

Daniel Smedley
Principal | Accredited Specialist in Tax Law
Sladen Legal
M +61 411 319 327| T +61 3 9611 0105
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: dsmedley@sladen.com.au