Private ruling: Capital gains tax
Date of advice: 9 January 2018
Published: June 2018
Ruling period: Year ending XX June 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Is the sale of the Client Database considered to be a CGT event under section 104-10 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: You are in business and you are selling your client database to another business. You entered into an “Agreement for Sale and Purchase of Client Database”. The details of the Agreement are as follows: The agreement is made between Entity A and Entity B. Entity A has agreed to sell its Client Database to Entity B upon the terms and conditions set out herein which are to have effect as of late 20XX. Effective late 20XX until late 20XX, Entity B, will pay 20% of gross income received (being total income less cost of goods sold) from the Entity A. Client Database. Provided that all payments are made to Entity A in accordance with this Agreement the Client Database will become the exclusive property of Entity B from late 20XX. Entity A. will have no further involvement in the servicing of clients listed in the Client Database from late 20XX and will cease trading from that date. Contemporaneously with each monthly payment Entity B shall provide Entity A with a monthly report listing the gross income from all clients listed on the Client Database. Entity A. shall have the right from time to time to contact clients listed on the Client Database solely to confirm the accuracy of the monthly reports and for no other purpose. The mobile telephone number of Entity A. will also be transferred to Entity B in late 20XX.

Relevant legislative provisions: Section 104-10 of the Income Tax Assessment Act 1997; | Section 108-5 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Section 108-5 of the ITAA 1997 defines a capital gains tax (CGT) asset as any kind of property or a legal or equitable right that is not property. A CGT asset may be tangible or intangible. The Client Database is the main asset of the business and therefore is a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity (subsection 104-10(2) of the ITAA 1997). The disposal of a CGT asset (the Client Database) triggers CGT event A1 at the time the sale contract is entered into. In this case, the ownership of the Client Database has changed from Entity A to Entity B. The portion of the sale proceeds attributable to the sale of the Client Database are considered to be capital proceeds and are included in calculating the gain or loss from its sale. You will make a capital gain if the capital proceeds from the sale are greater than the cost base of the Client Database. Conversely, you will make a capital loss if the capital proceeds from the sale are less than the cost base of the Client Database.