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Edited version of your private ruling
Authorisation Number: 1012560771008
Ruling
Subject: Investment profits
Question
Is the Company A assessable on the profits from their investment?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2006
Relevant facts
Company A invested in a project run by Company B whereby there were to receive a share of the profits and the return of their equity if the project was successful. Due to various factors Company B entered into a new contract with Company C assigning it's obligation to pay Company A it's share of the development's profits and to return Company A's equity. Company C paid Company A a lump sum representing a share of the profits and the return of their equity.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 974
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the ITAA 1997 explains that assessable income includes ordinary income, which is income according to ordinary concepts.
The profit arising on the termination of an investment will be income according to ordinary concepts where;
a) the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain; and
b) the transaction was entered into, the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction (Taxation Ruling TR 92/3; FCT v The Myer Emporium Ltd 87 ATC 4363).
Given that Company A carries on a business any profit arising from the investment in is income according to ordinary concepts.
The portion of the payment representing the return of equity has no tax consequences.