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  • CGT: Look-through treatment for earnout rights

    On 25 February 2016, legislation was enacted to provide look-through capital gains tax (CGT) treatment for look-through earnout rights created on or after 24 April 2015.

    Broadly, under the look-through CGT treatment:

    • capital gains and losses arising in respect of look-through earnout rights are disregarded;
    • for the buyer, any financial benefit provided (or received) under a look-through earnout right increases (or decreases) part of the cost base or reduced cost base of the underlying asset; and
    • for the seller, any financial benefit received (or provided) under the look-through earnout right increases (or decreases) the capital proceeds for the underlying asset.

    This new legislation does not apply prior to 24 April 2015. However, transitional protection is provided to taxpayers that have reasonably and in good faith anticipated the changes to the tax law in this area as a result of the announcement by the former Government.

    The protection operates by placing a statutory bar on the Commissioner amending an income tax assessment in relation to a particular contained in a statement, to the extent that the particular represents the taxpayer's reasonable anticipation of the announced changes to the law and satisfies the timing conditions.

    Any protection will be lost if the taxpayer makes a statement for a later year of income that is not consistent with the anticipated amendments reflected in the taxpayer's original statement in a way that is to the taxpayer's benefit. Assessments may be amended at any time to give effect to the loss of protection.

    See also:

    • Media release no. 008/2013External Link issued 14 December 2013 by the Assistant Treasurer
    • Media release no. 098/2010 issued 12 May 2010 by the Assistant Treasurer

    Non-qualifying earnout rights

    Taxpayers, who cannot satisfy the requirements of the law enacted on 25 February 2016, will need to apply the treatment detailed in Draft Taxation Ruling TR 2007/D10.

    Look-through treatment

    For more information on the look-through treatment for earnout rights, refer to

      Last modified: 01 Mar 2016QC 23024