Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 118 - Exemptions  

Subdivision 118-I - Look-through earnout rights  

SECTION 118-560   Object  

118-560(1)    
This Subdivision and its related provisions set out special rules for * look-through earnout rights. The object of these rules is to avoid unnecessary compliance costs and disadvantageous tax outcomes when entities involved in the sale of a business:

(a) cannot agree on the current value of some or all of the business ' assets due to uncertainty about the future economic performance of the business; and

(b) resolve this uncertainty by agreeing to potentially provide future additional consideration linked to this performance.

118-560(2)    
These rules achieve this object by:

(a) disregarding any * capital gain or * capital loss relating to the creation of a * look-through earnout right; and

(b) for the acquirer of the business - treating any * financial benefits provided (or received) under the right as forming part of (or reducing) the cost base or reduced cost base of the business assets; and

(c) for the seller of the business - treating any financial benefits received (or provided) under the right as increasing (or reducing) the capital proceeds for the business assets.

Note:

Sections 112-36 and 116-120 are 2 of the more important related provisions that set out these rules.