This measure is now proposed to apply to look-through ‘‘Earn-out’’ rights created on or after 24 April 2015.
‘‘Earn-out’’ rights created before this date should consider the treatment described in scenario 1 below. For all other taxpayers, the treatment described in scenario 2 and 3 below should be considered.
- ‘Earn-out’ rights created between 11 May 2010 and 23 April 2015
Taxpayers had the choice to apply the proposed look-through treatment as detailed in the Proposal Paper of May 2010, specifically:
- sellers who have entered arrangements where ‘Earn-out’ rights have been created between 11 May 2010 and 23 April 2015, and
- buyers in a standard earn out arrangement entered into on or after 17 October 2007.
The announcement of 23 April 2015 proposed that taxpayers who have reasonably and in good faith anticipated the amendments based on the original announcement of 11 May 2010, will be provided protection similar to that received by taxpayers in the announced but un-enacted measures process.
- ‘Earn-out’ rights created on or after 24 April 2015 but before 3 December 2015
Taxpayers with an ‘Earn-out’ right created on or after 24 April 2015, but before 3 December 2015, will be able to choose to apply the treatment specified in the draft legislation released on 23 April 2015 or on 3 December 2015 to their situation. This is available where taxpayers are able to comply with the requirements detailed in the draft legislation.
- ‘Earn-out’ rights created on or after 3 December 2015
Taxpayers who entered into an ‘Earn-out’ arrangement on or after 3 December 2015, but before commencement, can apply the draft law released on 3 December 2015. This is available where taxpayers are able to comply with the requirements detailed in the draft legislation released on 3 December 2015.
In any of the situations above, we will not review assessments until the outcome of these proposed amendments is known.
If amendments are required we will not apply any tax shortfall penalties and we will remit any interest accrued at the base interest rate up to the date the amending law is enacted. Additionally, we will remit any interest that accrues in excess of the base rate after that date if taxpayers actively seek to amend their assessments within a reasonable timeframe.
Non-qualifying ‘Earn-out’ rights
Taxpayers who cannot satisfy the requirements in either of the draft legislation released on 23 April 2015 or 3 December 2015 will need to apply the treatment detailed in Draft Taxation Ruling TR 2007/D10.
Look-through treatment
For more information on the look-through treatment for ‘Earn-out’ rights, refer to the current bill introduced on 3 December 2015 and the exposure draft released on 23 April 2015.
For more information on the original announcement, refer to the Treasury discussion paper issued on 12 May 2010.
Find out about:
- Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015External Link
- Exposure draft – providing ‘look-through’ CGT treatment to ‘Earn-out’ arrangements
- Treasury discussion paper – CGT treatment of ‘Earn-out’ arrangements
[ATO website] [LTN 4, 8/1/16]