| Disclaimer You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1052030531634
Date of advice: 8 September 2022
Ruling
Subject: Income vs capital - exit deed
Question 1
Is the payment received under the Exit Deed included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No. The payment is not for the loss of income, nor is any part of it identifiable as income. The payment is considered a capital receipt received for the loss of your rights under the Agreement, and as such it is not assessable as ordinary income under section 6-5 of the ITAA 1997.
Question 2
To the extent that the payment does not constitute assessable income in accordance with section 6-5 of the ITAA 1997, will it constitute capital proceeds under Division 116 of the ITAA 1997 in respect of CGT event C2 happening?
Answer
Yes. CGT event C2 happened when you entered into the Exit Deed with Entity A. The amount received is the capital proceeds from the CGT event happening and a capital gain may arise.
Question 3
To the extent that the payment does cause CGT Event C2 to happen will the intangible asset (rights under the Agreement) be considered to be an active asset under section 152-40 of the ITAA 1997?
Answer
Yes. Your rights under the Agreement are intangible assets which were inherently connected with your business. As such, they are active assets under section 152-40 of the ITAA 1997.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You operated a business.
You entered into an Agreement with Entity A under which you had rights to sell specific products and provide certain services for a specified period.
Entity A advised you that they were restructuring their business operations and the Agreement was terminated before the end of the specified period.
A dispute arose between you and Entity A with respect to the termination of the Agreement.
You and Entity A have entered into an Exit Deed under which you and Entity A agreed to the settlement of all matters arising from or otherwise in connection with the Agreement ending, without any concession of liability by either party.
Under the terms of the Exit Deed Entity A paid you an amount as compensation for the termination of the Agreement.
You have not carried on any business since the date the Agreement was terminated.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 104-25
Income Tax Assessment Act 1997 Division 116
Income Tax Assessment Act 1997 section 152-40