Commonwealth Consolidated Acts

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INCOME TAX ASSESSMENT ACT 1997 - SECT 118.560

Object

             (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.



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