Forgiving debts between entities (including related parties) can have unintended consequences.

The entity/individual forgiving the debt could end up reducing tax deductions, cost bases of their assets and carried forward losses if not done correctly.

Recently released Taxation Determination TD 2022/1 confirms that in order to forgive a debt for reasons of natural love and affection, the creditor must be a natural person.

Companies can forgive companies and they can mutually decide to forgo any tax implications.
Individuals and trusts however must tread carefully.

This is a complex area. Feel free to give us a call to discuss if you would like to know more.