Government Announcements
CGT and earnout arrangements
18.05.2010
In a media release of 12 May 2010, the Assistant Treasurer announced that amending legislation will be introduced to apply look-through CGT treatment for qualifying earnout arrangements in the sale of business assets.
Earnout arrangements are a common and efficient way of structuring the sale of a business or business assets to deal with uncertainty about the value of the business. The amendments will treat additional payments made under a “standard” earnout arrangement as related to the original asset for the seller and adding to the cost base for the buyer. It will treat payments made under a “reverse” earnout arrangement as effectively a repayment of part of the capital proceeds. Integrity rules will ensure that the look-through treatment will only apply to genuine earnout arrangements.
The amendments are to apply to earnout arrangements entered into on or after Royal Assent of the amending legislation. Optional transitional relief is to be provided, in certain cases back to 17 October 2007 (the date of release of TR 2007/D10 (which has not been finalised)).
A consultation paper on the proposed amendments has been released.
For the text of the Assistant Treasurer’s media release (which contains a link to the consultation paper) click here.
