Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (10 of 2016)

Schedule 1   CGT treatment of earnout rights

Part 1   Main amendments

Income Tax Assessment Act 1997

1   After section 112-35

Insert:

112-36 Acquisitions of assets involving look-through earnout rights

Consequences for cost base and reduced cost base

(1) If you *acquire a *CGT asset because an entity *disposes of the CGT asset to you, and that disposal causes *CGT event A1 (the first CGT event ) to happen:

(a) neither the *cost base nor the *reduced cost base of the CGT asset includes the value of any *look-through earnout right relating to the CGT asset and the acquisition; and

(b) include in the first element of the CGT asset's cost base and reduced cost base any *financial benefit that you provide under such a look-through earnout right; and

(c) reduce the first element of the CGT asset's cost base and reduced cost base by an amount equal to the amount of any financial benefit that you receive under such a look-through earnout right.

Remaking choices affected by the look-through earnout right

(2) Despite section 103-25, you may remake any choice you made under this Part or Part 3-3 for a later *CGT event involving the *CGT asset if:

(a) after the later CGT event, you provide or receive a *financial benefit under such a *look-through earnout right; and

(b) you remake the choice at or before the time you are required to lodge your *income tax return for the income year in which the financial benefit is provided or received.

Amending assessments affected by the look-through earnout right

(3) The Commissioner may amend an assessment of a *tax-related liability if:

(a) an entity provides or receives a *financial benefit under such a *look-through earnout right; and

(b) the amount of the tax-related liability:

(i) depends on that entity's taxable income for an income year in which a *CGT event, involving the *CGT asset, happens after the first CGT event but before the financial benefit is provided or received; or

(ii) is otherwise affected by that right's character as a look-through earnout right; and

(c) the Commissioner makes the amendment before the end of the 4-year period starting at the end of the income year in which the last possible financial benefit becomes or could become due under the look-through earnout right.

The tax-related liability need not be a liability of that entity.

Note: Subparagraph (b)(ii) covers changes to the amount of that tax-related liability that happen directly or indirectly because of subsection (1) or (2).

(4) If at a particular time a right is taken never to have been a *look-through earnout right because of subsection 118-565(2), the Commissioner may amend an assessment of a *tax-related liability for up to 4 years after that time if:

(a) an entity provides or receives a *financial benefit under the right; and

(b) the amount of the tax-related liability:

(i) depends on that entity's taxable income for an income year in which a *CGT event, involving the *CGT asset, happens after the first CGT event but before the financial benefit is provided or received; or

(ii) was otherwise affected by that right's character as a look-through earnout right before subsection 118-565(2) applied.

The tax-related liability need not be a liability of that entity.

Note: Subsection 118-565(2) restricts look-through earnout rights to rights to financial benefits over a period not exceeding 5 years from the end of the income year in which the first CGT event happens.

(5) If, after providing or receiving a *financial benefit under a right referred to in subsection (3) or (4):

(a) you are dissatisfied with an assessment referred to in that subsection; and

(b) the Commissioner notifies you that the Commissioner has decided under that subsection not to amend your assessment;

you may object against the assessment, to the extent that it does not take account of that right's character (as a *look-through earnout right or not such a right), in the manner set out in Part IVC of the Taxation Administration Act 1953.