Statute of limitations and division 7A
Whether you are a debtor with a loan, or a company seeking debt recovery, it is important to understand when loans repayable become statute barred.
The requirements are clearly outlined in Division 7A of Part III of the Income Tax Assessment Act.
If a financial debt is incurred and remains unpaid for a period of six years (three years in the Northern Territory), the debtor may not be sued by the creditor in a court of law and may be released from the debt. This process is called Statute Barred.
Under the Fact Sheet on the ATO’s website, a debt can be forgiven if the company or individual seeking debt recovery releases the debtor. Subsection 109G(4) allows the debtor to be forgiven by a private company if they are satisfied the following has taken place:
- Repayment of the debt would cause thedebtor undue hardship.
- When the individual/company incurred thedebt, they were in a position to pay it back.
- The individual/company lost the ability topay the debt as a result of circumstancesbeyond their control.