Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 118.560

  (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.