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01 Jul 10 Look-through treatment for earnout arrangements

On 12 May 2010, the Assistant Treasurer announced "Look-through treatment for earnout arrangements to simplify sale of business assets" as part of the 2010–11 Budget announcements.

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 – the date of release of a relevant ATO draft ruling.

The ATO has now advised the administrative treatment that it will apply to earnout arrangements pending the passage of the amending legislation.

 


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