13 May 1010 Discussion Paper - CGT treatment of earnout arrangements
As notified in our special Budget edition of TAXVINE - 2010 TAXVINE No 19 (11 May 2010) - it was announced on Budget night that the Government will provide a legislative remedy to fix the adverse CGT consequences of earnout arrangements, currently highlighted in draft Taxation Ruling TR 2007/D10.
Further to that announcement, the Assistant Treasurer has now issued media release No 2010/098, 12 May 2010, announcing the release of a consultation paper and providing further details of the Government's proposal. Specifically, the Assistant Treasurer said that the Government will introduce legislation to apply look-through CGT treatment for qualifying earnout arrangements in the sale of business assets. The measure will treat additional payments made under a "standard" earnout arrangement as related to the original asset for the seller and adding to the cost base for the buyer. It will treat payments made under a "reverse" earnout arrangement as effectively a repayment of part of the capital proceeds.
This change will apply to earnout arrangements entered into on or after Royal Assent of the amending legislation. Optional transitional relief will be provided, in certain cases back to 17 October 2007, being the date of release of TR 2007/D10.