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01 Oct 10 Earnouts - update

Tax Counsel Angie Ananda FTIA, Deepti Paton ATIA and Tamera Lang ATIA attended Treasury's consultation on the proposed new rules for earnout arrangements on Tuesday 28 September 2010.

TaxVine readers will be well aware that there has been significant uncertainty around the correct tax treatment of earnout arrangements. The uncertainty arose due to the ATO's draft ruling TR 2007/D10, which has not been finalised.  In this year's Budget, the (then) Assistant Treasurer announced that legislation would be introduced to apply a look-through CGT treatment for certain qualifying earnout arrangements.  The Taxation Institute lodged a joint submission in June 2010 in response to Treasury's May 2010 Discussion Paper.

The purpose of the latest consultation meeting was to clarify various aspects of the joint submission, including the interaction of the new rules with the consolidation regime. Treasury confirmed that the new rules will encompass earnout arrangements arising from the sale of assets (including interests in entities that carry on a business) or businesses. Treasury is currently instructing the legislative drafters and exposure draft legislation will be released for comment in due course.

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