Debt forgiveness 15 Aug 2016

It may seem extraordinary but if someone forgives you a debt, from a tax perspective, you have taxable income unless the debt is forgiven for natural love and affection.

In this context the lender can only have natural love and affection for their relatives or a trust where those relatives are beneficiaries.

If you’re structuring a business deal, don’t include debt forgiveness. For example, A says to C: “I’ll sell you my shares for $40,000 and forgive you the debt you owe me of $10,000”. It would be better to sell the shares for $30,000 and insist on the debt being repaid.

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