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The earnout workout

Published on 01 Feb 19 by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE

The income tax treatment of arrangements involving deferred consideration (“earnouts”) has been embarrassingly complex for tax practitioners and administrators alike. This continues to be the case, particularly for earnout arrangements that are not covered by the 2015 amendments to the capital gains tax rules. A recently released discussion paper from the ATO raises a number of consultation questions aimed at determining what future guidance is needed for those arrangements. The article analyses the current tax issues by way of a simple example and suggests that, first, greater clarity is needed to determine when earnout amounts are assessable or deductible. Second, the article suggests that the taxation of financial arrangement rules could be used to provide a more comprehensive solution to the treatment of earnouts.

Author profile

Enzo Coia CTA
Enzo is a Tax Partner at Deloitte with over 20 years’ experience providing advice on Australian and international taxation matters. Enzo specialises in M&A, financing, capital management and dealing with revenue authorities. He is expertly placed to understand clients’ needs, having spent several years in a senior tax leadership position at a multinational oil and gas company. - Current at 30 November 2020
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