(1) This Subdivision and its related provisions set out special rules for * look-through earnout rights. The object of these rules is to avoid unnecessary compliance costs and disadvantageous tax outcomes when entities involved in the sale of a business:
(a) cannot agree on the current value of some or all of the business' assets due to uncertainty about the future economic performance of the business; and
(b) resolve this uncertainty by agreeing to potentially provide future additional consideration linked to this performance.
(2) These rules achieve this object by:
(a) disregarding any * capital gain or * capital loss relating to the creation of a * look-through earnout right; and
(b) for the acquirer of the business--treating any * financial benefits provided (or received) under the right as forming part of (or reducing) the cost base or reduced cost base of the business assets; and
(c) for the seller of the business--treating any financial benefits received (or provided) under the right as increasing (or reducing) the capital proceeds for the business assets.
Note: Sections 112-36 and 116-120 are 2 of the more important related provisions that set out these rules.