• Service: Tax, Corporate Tax
  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 2/10/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Angus Wilson

Angus Wilson

National Leader,

Deal Advisory – Tax

+61 2 9335 8288

Protecting infrastructure transactions from debt forgiveness 

by Angus Wilson, Financial Services Specialist

With the recent and proposed divestments of various infrastructure assets in Australia, it is important to give careful consideration to how the commercial debt forgiveness rules in Division 245 of the ITAA 1997 may apply to these transactions.

In circumstances where the vendor is in receivership and debt is trading at a significant discount to face value, there is a risk that the vendor will be unable to fully repay its debts and that the commercial debt forgiveness rules may be triggered prior to completion of the transaction.


The debt forgiveness rules require the vendor to reduce its tax attributes by the forgiven amount in a specified order. Once the forgiven amount has been applied against the vendor’s losses, the residual amount is applied to the maximum extent possible against remaining tax attributes. In infrastructure purchases, the bulk of these attributes are often Division 43 buildings and improvements and, to a lesser extent, Division 40 plant assets.


Subject to meeting certain criteria, the tax written down value of buildings and improvements transfers to the purchaser at the value immediately prior to completion and there is a risk that the debt forgiveness could significantly reduce the tax base of Division 43 assets available to the purchaser.


In advising clients, we are considering approaches that can been taken to eliminate exposure to these rules. In addition, the following issues should be considered in light of Division 245:


  • how to mitigate the impact of a debt forgiveness event by carefully choosing the order in which the forgiven amount is applied against tax
  • how the Division 243 limited recourse debt provisions may interact with Division 245 to reduce tax attributes.

Share this

Share this


Our Tax team assists with corporate tax, transfer pricing, indirect tax, global mobility, R&D incentives, superannuation and more.

Financial Services

Our Financial Services practice can help financial institutions make better decisions about performance, growth, governance and prudential matters.