The much anticipated final ‘earnout legislation’ Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015 is now before Parliament. An earnout arrangement is generally a right to future financial benefits linked to the economic performance of the business or an asset after the sale of a business. Under the new rules, payments received or paid under qualifying earnout rights will instead affect the capital proceeds and cost base of the underlying asset or assets.
There are a few changes between the Exposure Draft (ED) of 23 April 2015 and the Bill introduced into Parliament in December 2015:
The new amendments apply to earnout rights entered into on or after 24 April 2015 with protection for taxpayers that applied the 2010 Budget announcements. You should review the rules to see if you have a qualifying look through earnout right. If you do fall within the rules it provides relief on business acquisitions as tax will only be payable once the deferred consideration is received so there is better cash and tax payment matching.