COVID-19 has had a debilitating effect on many sectors of the economy and unfortunately, the coming 12 months will see more businesses in financial distress and an uptick in business insolvency.

In such an environment, the commercial reality is that many businesses will be owed debts that will not be paid in full or at all. For many businesses, this could spell disaster. For this reason, debtor management is crucial in the present environment.

The COVID-19 restrictions are slowly easing but the economic impacts are far from over. While businesses struggle to find ways to free up cash, it is likely we will see restructuring of loans and waiving of debts.

Taxpayers and their advisors need to be aware of the taxation implications of restructuring and forgiving loans, including the Commercial Debt Forgiveness (CDF) rules, Division 7A and the CGT rules.

Key takeaway

As we know, the Federal Government has implemented a package of changes to Australian insolvency and bankruptcy laws to provide relief from the economic impacts of COVID-19.