Tax implications of Debt Forgiveness Arrangements

Presently there are many companies and individuals in discussion with lenders regarding debt forgiveness on property that has suffered substantial reduction in value since it was purchased.

Revenue has recently issued guidance on the tax treatment of such transactions.

Where a lender enters into a debt restructuring, forgiveness or debt write-off arrangement for commercial reasons and Revenue are satisfied that the lender is not intent on making a gift of any sort to the borrower then they would not be subject to any Capital Acquisition Tax/Gift Tax (CAT) charge in respect of the arrangement.

The Revenue eBrief states that this approach will only apply in the above circumstances and should any debt restructure, forgiveness or write-off arrangement be undertaken to avoid tax the above treatment will not apply.

The Revenue eBrief deals with CAT only and there are separate provisions introduced in the Finance Act 2013 specific to individuals involved in a trade dealing in or developing land.

Contact Jimmy Dolan Director on 01 439 4223 for more information. OSK tax advisors Dublin provide a wide range of tax planning services that maximise the benefit to businesses and individuals while enabling total compliance with all relevant tax laws

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