Commercial debt forgiveness: love and affection exclusion finalised

Taxation Determination TD 2022/1 finalises the ATO’s position on the “natural love and affection” exclusion in the commercial debt forgiveness rules. The key point in TD 2022/1 is that the creditor must be a natural person because the “reasons of natural love and affection” must be those of the creditor.

The exclusion may also be available in “limited” circumstances where the natural person is acting in a trustee capacity or as a partner in a partnership. Further, the exclusion can apply where the debtor is not an individual (eg if a parent forgives a debt owed by their child’s company).

The ATO will not devote compliance resources to apply its revised view in relation to debts forgiven before 6 February 2019 that would have been covered by ATO ID 2003/589.