Private ruling: Reduction of capital proceeds
Date of advice: 25 May 2026
Published: 10 August 2026
Ruling period: Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is the Trust entitled, under section 116-45 of the Income Tax Assessment Act 1997 , to reduce the capital proceeds from the share sale that occurred on x July 20xx by the relevant unpaid anniversary payments? | A1: Yes.

Relevant facts and circumstances: Business A, Business B and Person A and Person B as trustees for the Trust entered into a Share and Business Sale Agreement (the Agreement) with Business C on xx July 20xx. Under the Agreement, Business A, Business B and the Trust are collectively known as the Sellers. Recital C of the Agreement states, 'The Sellers have agreed to sell, and the Buyer has agreed to purchase, the Business including the Assets on the terms and conditions set out in this agreement.' Under clause 1 of the Agreement: • Assets are defined to mean ­ Plant and Equipment, the Stock, the Assumed Contracts, the Seller IP, the Records, the Goodwill and all other rights and assets of the Sellers used in the Business but does not include the Excluded Assets. • Business is defined to mean ­ The business known as "Business A" which provides fire asset management and compliance services using the Assets. • Company is defined as Business D. The Trust owned all the shares in Business D. The Purchase Price for the sale was $x,xxx,xxx. In accordance with clause 3.4 the Purchase Price was apportioned in the following manner: Entity Apportionment of Purchase Price Business A - Assets and goodwill only $xxx,xxx Business B- Assets and Goodwill only $xxx,xxx Company - Sale Shares $x,xxx,xxx The settlement occurred on x July 20xx. In accordance with clause 1 the Purchase Price was payable as: • Upfront Purchase Payment of $x,xxx,xxx • First Anniversary Payment of $xxx,xxx due x July 20xx • Second Anniversary Payment of $xxx,xxx due x July 20xx On x July 20xx, the following amounts were received: • Business A $xx,xxx • Business B $xx,xxx • Business D $x,xxx,xxx In accordance with clause 3.1 the Upfront Purchase Price was reduced by $xxx,xxx which had already been paid by Business C to the Sellers in advance of the Agreement. The anniversary payments of $x,xxx,xxx have not been received and both anniversary payment dates have passed. The first payment is approximately X months overdue. Following a formal letter of demand for outstanding monies, Business C alleged breaches of warranty. The Sellers deny all alleged breaches. No breach notices were issued within the contractual warranty claim period. Legal advice has been obtained indicating: • Enforcement would require litigation, • Litigation would be costly and protracted, • Recovery prospects are uncertain, • Commercial recovery is doubtful. Business C has demonstrated unwillingness to pay and has not engaged constructively in resolution. The First Anniversary Payment is substantially overdue. The relationship between the parties has broken down irretrievably. The Sellers have formed the bona fide commercial view that recovery is unlikely. The anniversary payments were fixed and unconditional, subject only to the passage of time. Both payment dates have passed without payment. Business C has: • Failed to make payments when due. • Raised warranty allegations after demand for outstanding monies. • Failed to pursue those allegations within contractual timeframes. • Failed to commence formal proceedings. • Not offered structured repayment proposals. This is not an earn-out or contingent adjustment. The amount was fixed and legally payable.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 116-20 | Income Tax Assessment Act 1997 section 116-25 | Income Tax Assessment Act 1997 section 116-45

Reasons for decision: Summary: Section 116-25 of the ITAA 1997 explains that there are six modifications to the general rules that maybe relevant to a CGT event. It depends on the type of CGT event to which modifications can apply. All six modification may apply to an A1 event (disposal). An A1 event is an event that happens when you dispose of a CGT asset. Under section 104-10, a disposal happens if there is a change of ownership from you to another entity because of some act, event or operation of law. Under section 108-5, a CGT asset is any kind of property or a legal or equitable right that is not property. This includes goodwill, shares in a company and land and buildings. The sale of the shares in Business D is considered an A1 event. The shares in Business D are CGT assets and there is a change of ownership to Business C. The total Purchase Price under the Agreement was $x,xxx,xxx with an Upfront Payment of $x,xxx,xxx and anniversary payments of $x,xxx,xxx in two instalments of $xxx,xxx. Of this Purchase Price, the Trust was entitled to $x,xxx,xxx. The general rules about capital proceeds are outline in section 116-20. The capital proceeds of the CGT event are the total of the money you received, or an entitled to receive and the market value of any other property you have received or are in entitled to receive in respect of the CGT event. This means that the entitlement to money in respect of a CGT event is taken into consideration in the year the event happens to determine tax obligations. Furthermore, the time of an A1 event happens when you enter into the contract for the disposal or if there is no contract, when the change of ownership occurs. As the A1 event occurred on the xx July 20xx, the $x,xxx,xxx will be included in the Trust's assessable income for the financial year ending xx June 20xx. At the time of this application, the $x,xxx,xxx in anniversary payments is still outstanding. The third modification rule is contained in section 116-45. This section deals with the non-payment of consideration in respect of a CGT event. It explains that the capital proceeds from a CGT event will be reduced if: a) You are not likely to receive some or all of the unpaid amount of those proceeds; and b) This is not because of anything you or your associate has done or omitted to do; and c) You took all reasonable steps to get the unpaid amount. The term 'not likely' is vague and the likelihood of receiving the unpaid capital proceeds is an objective question. The anniversary payments of $x,xxx,xxx still outstanding is not unpaid because of anything the trust have done or failed to do. Both anniversary payment dates have passed with the First Anniversary Payment approximately X months overdue. The Sellers have tried multiple ways to retrieve the money owed. Along with a formal letter of demand for the outstanding monies given to Business C, the Sellers have gone and sought legal advice including whether enforcement (litigation) would be viable. Further, Business C have not engaged constructively in resolution, indicating the applicants are trying to retrieve the monies owing. Furthermore, other considerations include: • The consideration was unconditional and legally payable. • The first payment is substitutionally overdue (X months). • Business C have not offered repayment proposals. • Warranty allegations were raised by Business C after demand with no formal proceedings commenced. Based on the facts, the unpaid capital proceeds are unlikely to be retrieved. The Trust is entitled to reduce their capital proceeds in the relevant proportion for the business sale that occurred in the financial year ending xx June 20xx under section 116-45 of the ITAA 1997.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .