Private ruling: CGT - C2 event - active asset
Date of advice: 22 July 2025
Published: 15 September 2025
Ruling period: Year ended DDMM20YY
Date scheme commenced: DDMM20YY

Ruling: Q1: Does the exit entitlement amount proceeds received under the deed of termination of the agency agreement constitute capital proceeds, and thus a CGT event for the purposes of section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. A CGT event C2 occurred when the deed of termination of the agency agreement contract was entered into which resulted in the cancellation, surrender of the franchise agency agreement asset. | Q2: Does the deed of termination of the agency agreement satisfy as an active asset under section 152-40 of the ITAA 1997? | A2: Yes. The agency agreement rights are an active asset in accordance with section 152-40 of the ITAA 1997. As the agency agreement asset was used or held for use in the course of carrying on a business that was carried on by you.

Relevant facts and circumstances: The company was incorporated after DDMM19YY, with the sole purpose of operating a franchise in a state of Australia. In 20YY, the company entered an agreement to operate a franchise located in a state of Australia. The agreement allowed the company to operate a franchise situated in a state of Australia. On termination with the franchisor the following agreements was in place with the company: • franchise agreement In 20YY the deed of termination of the agency agreement was entered into with an effective termination date. Specific clauses in the franchise agreement allowed the company to operate a franchise at the specified location. The agency agreement provided the right to specified remuneration, and the franchisors' right to terminate the agency agreement on a variety of reasons, including for convenience. In the event of termination by the franchisor an exit entitlement amount was required. The exit entitlement amount represented the goodwill that was contributed by the company during the term of agreement. Specific clauses in the deed of termination, outlined the termination of the agency agreement, and that the payment of exit entitlement amount per the agency agreement, is to compensate the company for goodwill of the business that the company contributed to the business during the agency period.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-25 | Income Tax Assessment Act 1997 Subdivision 104-C | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 152-40