Australia: Changes to tax treatment of “earn-out” arrangements

Australia: Treatment of “earn-out” arrangements

Changes enacted in early 2016 removed some uncertainty concerning the tax treatment of earn-out payments or receipts. There is a “look-through” capital gains tax treatment for earn-out rights under which (1) capital gains and losses arising in respect of look-through earn-out rights will be disregarded; and (2) payments received or paid under the earn-out arrangements will affect the capital proceeds and cost base of the underlying asset(s) to which the earn-out arrangement relates.

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The new earn-out rules apply to arrangements entered into on or after 24 April 2015. Taxpayers that “reasonably and in good faith” anticipated the changes to the earn-out rules as a result of announcements by the former government in May 2010 are protected via transitional rules.

 

Read a June 2016 report prepared by the KPMG member firm in Australia: Time to review older earnout arrangements?

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