Thinking | 10 August 2020

Debt forgiveness and Division 7A reprieve for loans put on hold during COVID-19

By Andrew O'Bryan and Adam Dimac

The Australian Taxation Office has recently set out its position on the debt forgiveness consequences and Division 7A consequences where loans are put on hold during the COVID-19 pandemic.

In a pragmatic approach, the ATO has confirmed that a debt is not considered forgiven where repayments are postponed, unless there is evidence that a creditor will no longer rely on an obligation for repayment.

For Division 7A purposes, the ATO accepts that allowing a borrower more time to repay a debt due to COVID-19 will not result in the debt being treated as forgiven, unless a reasonable person would conclude a creditor will not insist on payment or rely on the borrower's obligation to pay.

It is likely that the ongoing impact of COVID-19, particularly in Victoria where strict lockdown restrictions remain in place, will mean that many taxpayers will be seeking a moratorium on their commercial and related party loan arrangements. While the ATO's position may alleviate immediate cash flow issues, commercial and related party loan arrangements repayments will eventually need to resume.

Contact

Andrew O’Bryan

Andrew provides advice on the application of a wide range of taxation.

Adam Dimac

Adam is an experienced tax lawyer, and advises clients on a range of matters including tax planning and structuring,...

Related practices

You might be also interested in...

Tax & Superannuation | 10 Aug 2020

JobKeeper 2.1

On 7 August 2020 the Government announced some the modifications to JobKeeper 2.0, which would make it accessible to more businesses and their employees.

Tax & Superannuation | 7 Aug 2020

The last days of Rome: super guarantee amnesty ends 7 September

The Superannuation Guarantee Amnesty comes to an end on 7 September 2020, taking with it the generous concessions provided for those who voluntarily disclose superannuation guarantee shortfalls. With an onerous penalty regime coming into effect after the Amnesty, it is critical that employers take advantage of the Amnesty while there is still time. We discuss the benefits provided under the Amnesty and whether you are eligible to access it.