Debt Waiver Between Related Parties in Business

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Debt,Waiver,Related Parties

Exploring the common practice of debt waiver between related parties in business and its implications.

In the course of running a business, it is common for companies to incur debts to be settled at a later date. This could arise either through credit transactions where goods and services are supplied and settled later, or through receiving financial assistance such as loans or advances for working or permanent capital purposes.

Third parties usually do not waive or forgive such debts except under special circumstances, for example, when there is a restructuring of debt, or the debtor is in financial difficulties. However, this situation is more common between related parties where one party has control or influence over the other party. The reason being the owners of the group of related companies take the position that it is all “within the family”. The Income Tax Act has a specific provision dealing with the waiver of debts

 

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