Private ruling: Enhancements to Contractual Rights
Published: October 2014
Ruling period: The years ended 30 June 20xx to 20yy
Date scheme commenced: During the year ended 30 June 20xx

Ruling: Q1: Will the additional revenue arising from the Enhancements be assessable to the Taxpayer, as the head company of a tax consolidated group, under subsection 6-5(1) of the Income Tax Assessment Act 1997 ? | A1: Yes | Q2: Will the value of the rights acquired under the Enhancements be assessable as ordinary income to Taxpayer, as the head company of a tax consolidated group, under subsection 6-5(1) of the Income Tax Assessment Act 1997 ? | A2: No | Q3: Will the value of the rights acquired under the Enhancements be assessable to Taxpayer, as the head company of a tax consolidated group, as a subsidy or bounty under section 15-10 of the Income Tax Assessment Act 1997 ? | A3: No | Q4: Will the value of the rights acquired under the Enhancements be capital proceeds for the purposes of calculating a capital gain or capital loss made by Taxpayer, as the head company of a tax consolidated group, under Part 3-1 of the Income Tax Assessment Act 1997 , as a result of any CGT events that happen upon the entering into or performance of the Amending Deed 1? | A4: No | Q5: Will the value of the rights acquired under the Enhancements be capital proceeds for the purposes of calculating a capital gain or capital loss made by Taxpayer, as the head company of a tax consolidated group, under Part 3-1 of the Income Tax Assessment Act 1997 , as a result of any CGT events that happen upon the entering into or performance of the xx Deed? | A5: No | Q6: Will the value of the rights acquired under the Enhancements be capital proceeds for the purposes of calculating a capital gain or capital loss made by Taxpayer, as the head company of a tax consolidated group, under Part 3-1 of the Income Tax Assessment Act 1997 , as a result of any CGT events that happen upon the entering into or performance of the Amending Deed 2? | A6: No | Q7: Will the value of the rights acquired under the Enhancements be capital proceeds for the purposes of calculating a capital gain or capital loss made by Taxpayer, as the head company of a tax consolidated group, under Part 3-1 of the Income Tax Assessment Act 1997 , as a result of any CGT events that happen upon the entering into or performance of the Amending Deed 3? | A7: No | Q8: Will the value of the rights acquired under the Enhancements be capital proceeds for the purposes of calculating a capital gain or capital loss made by Taxpayer, as the head company of a tax consolidated group, under Part 3-1 of the Income Tax Assessment Act 1997 , as a result of any CGT events that happen upon the entering into or performance of the Amending Deed 4? | A8: No

Relevant facts and circumstances: The taxpayer, the head company of a tax consolidated group, applied for a private ruling in relation to certain enhancements being made to pre-existing contractual rights held by a member of the consolidated group that were originally entered into some years ago with a unrelated party that provides the member, amongst other things, the right to charge an amount (of a revenue nature) for a certain number of years. The new enhanced rights will provide the group with the right to now charge an increased amount and for an increased period. The enhancements are given by the other party in return for the group undertaking obligations in connection with another new arrangement with the other party.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(1) | section 15-10 | Part 3-1

Reasons for decision: Summary: Yes. The revenue from the Enhancements constitutes ordinary income for tax purposes derived by the Taxpayer tax consolidated group through the member. No. The value of the rights acquired under the Enhancements are not ordinary income derived for tax purposes at the time of executing the relevant agreements. No. The value of the rights acquired under the Enhancements are not considered to be in the nature of a 'bounty' or 'subsidy'. No. In relation to the Amending Deed 1, CGT events C2, D1, and F4 will not happen to the Taxpayer tax consolidated group. CGT event H2 happens as the amendments are an act, transaction or event that occurs in relation to a CGT asset (that asset being the contractual rights that the member owns under the existing Deed). However, we agree that there are no capital proceeds because of CGT event H2 happening. Accordingly, there are no capital proceeds from entering into or performance of the Amending Deed 1 for the purposes of calculating a capital gain or capital loss to the Taxpayer tax consolidated group. No. In relation to the xx Deed, CGT events C2, F4, and H2 will not happen to the Taxpayer tax consolidated group. CGT event D1 happens as contractual rights are created in another entity. However, we agree that there are no capital proceeds from CGT event D1 happening. Accordingly, there are no capital proceeds from entering into or performance of the xx Deed for the purposes of calculating a capital gain or capital loss to the Taxpayer tax consolidated group. No. In relation to the Amending Deed 2, CGT events C2, D1, F1 and F4 will not happen to the Taxpayer tax consolidated group. CGT event H2 happens as the amendments are an act, transaction or event that occurs in relation to a CGT asset (that asset being the contractual rights that the member owns under the existing Deed). However, we agree that there are no capital proceeds because of CGT event H2 happening. Accordingly, there are no capital proceeds from entering into or performance of the Amending Deed 2 for the purposes of calculating a capital gain or capital loss to the Taxpayer tax consolidated group. No. In relation to the Amending Deed 3, CGT events C2, D1, F4 and H2 will not happen to the Taxpayer tax consolidated group. This is because no member of the Taxpayer tax consolidated group is a party to the existing Deed (the relevant party is xx). Accordingly, there is no CGT event nor any capital proceeds from entering into or performance of the Amending Deed 3 for the purposes of calculating a capital gain or capital loss to the Taxpayer tax consolidated group. No. In relation to the Amending Deed 4, CGT events C2, D1, F1 and F4 will not happen to the Taxpayer tax consolidated group. CGT event H2 happens as the amendments are an act, transaction or event that occurs in relation to a CGT asset (that asset being the contractual rights that the member owns under the existing Deed). However, we agree that there are no capital proceeds because of CGT event H2 happening. Accordingly, there are no capital proceeds from entering into or performance of the Amending Deed 4 for the purposes of calculating a capital gain or capital loss to the Taxpayer tax consolidated group.