»Ê¹ÚÌåÓýapp

Tax treatment of acquired impaired debt

CTA09/S361 deals with the acquisition of creditor rights by a connected company at undervalue, and CTA09/S362 deals with parties becoming connected where the creditor’s rights are subject to an impairment adjustment - that is, they deal with the acquisition of impaired debt, and with impaired debt between companies that become connected.

»Ê¹ÚÌåÓýapp rules apply in two circumstances:

• where a company acquires impaired debt and is already connected with the debtor company or becomes connected at the same time (CFM35450)
• where a company already holds impaired debt and becomes connected with the debtor company (CFM35480)

»Ê¹ÚÌåÓýappre are, however, exclusions that can apply in certain circumstances. See CFM35530 for further details.

Deemed release

In both cases, there is deemed to be a release of the ‘impairedâ€� portion of the debt. This gives rise to a taxable credit in the debtor company. »Ê¹ÚÌåÓýapp normal rule in CTA09/S358 that no credit is brought into account by the debtor when connected party debt is released is disapplied. This is referred to as a ‘deemed releaseâ€�.

‘Connection� here is defined by CTA09/S363. If two companies are not regarded as connected because they both controlled by a governmental organisation (CFM35110), or because the creditor holds the debt in exempt circumstances (CFM35130), they are not connected for these purposes.

»Ê¹ÚÌåÓýapp rules will not apply if the creditor company buys the debt from another company, and the ‘old creditorâ€� and ‘new creditorâ€� are connected - either one controls the other, or they are under common control - so there will be no tax charge on the debtor company when a debt is transferred within a group.