Private ruling: CGT - contract of sale
Date of advice: 7 November 2023
Published: 18 December 2023
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the disposal of the Taxpayer's interest in the medical practice under the contract of sale result in disposal of a Capital Gains Tax (CGT) asset, and therefore trigger CGT event A1 under Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the whole proceeds? | A1: Yes. | Q2: If the answer to question 1 is No, will the disposal of the Taxpayer's interest in the medical practice under the contract of sale still result in the disposal of a CGT asset, therefore triggering CGT event A1 under section 104-10 of the ITAA 1997, in respect of a portion of the proceeds? | A2: Not applicable.

Relevant facts and circumstances: The Taxpayer managed a specialist medical practice and built a reputation in their specialist field. The practice commenced post DD MM YYYY The Taxpayer's practice had turned over in excess of $X per year in the years prior to the transaction. The Taxpayer managed the practice in conjunction with another specialist medical practitioner. The Taxpayer and the other specialist medical practitioner operated their practice in conjunction with a Service Entity (the Group). The Service Entity employed other medical practitioners to provide medical services in their specialist field and administration staff. The Service Entity has entered into the lease on the property, coordinates billing for the Taxpayer, the other specialist, and the other medical practitioners it engages. The Taxpayer and the other specialist medical practitioner are seen as the key practitioners of the Group. The Group was approached by a third party (Company Z), with an offer to acquire the Taxpayer's practice, the other specialist's practice, and the Service Entity as part of a single transaction. Sale contracts were entered into between Company Z and the Group on DD MM YYYY The sale proceeds attributable to the Taxpayer's practice was $X. The proceeds payable to the Taxpayer were a mix of cash and scrip in the acquirer. The total sale proceeds attributable to the whole transaction i.e., the Taxpayer's practice, the other specialist medical practitioner and the Service Entity was c. $X. The proceeds were a mix of cash and scrip in the acquirer. Company Z has continued to operate the medical practices and business. The Taxpayer and the other specialist have become employees of Company Z. Under the employment contract, the Taxpayer will have an 18-month notice period to cease employment and Company Z will have a 6-month notice period. Company Z purchased all the business assets of the Taxpayer, including: • The Intellectual Property • Business Records • Goodwill; and • All other tangible or intangible assets owned or used by the Taxpayer in the business. A restraint was placed on the Taxpayer from establishing a medical practice which would compete against Company Z. The Taxpayer will continue their services provided in relation to their private hospital practices and medical service practice. These would be treated as personal services income and did not form part of the main medical practice managed by the Taxpayer.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 subsection 104-10 | Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 subsection 104-10(5) | Income Tax Assessment Act 1997 subsection 104-10(5)(1) | Income Tax Assessment Act 1997 subsection 108-5(2)(b) | Income Tax Assessment Act 1997 subsection 108-5(b)

Reasons for decision: Summary: The disposal of the Taxpayer's interest in the medical practice under the contract of sale resulted in the disposal of a Capital Gains Tax (CGT) asset triggering a CGT event A1 under Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Detailed reasoning: All legislative references are to the Income Tax Assessment Act 1997 (ITAA) unless otherwise stated. Section 102-20 provides that a Taxpayer may make a capital gain or loss when a capital gains tax event occurs. Section 104-10(1) states that CGT event A1 will happen if you dispose of a CGT asset. Subsection 108-5(1) defines a CGT asset as any kind of property or a legal equitable right that is not property. Subsection 104-10(3) describes when CGT event A1 happens. The time of this CGT event is either when the Taxpayer enters into a contract for the 'disposal', or if there is no contract when the change of ownership occurs. The specialist medical practice is a CGT asset within the definition of subsection 108-5(1). The disposal of the medical practice on 3 May 20XX to Company Z satisfies subsection 104-10(3) such that a CGT event A1 occurred. None of the exceptions in subsection 104-10(5) apply to the Taxpayer's circumstances as the practice commenced after 20 September 1985. In this case, Company Z purchased all the business assets of the Taxpayer, including: • The Intellectual Property; • Business Records; • Goodwill; and • All other tangible or intangible assets owned or used by the Taxpayer in the business. Subsection 108-5(2)(b) states that goodwill, or an interest in it, is a CGT asset. Paragraph 16 of Taxation Ruling 96/16 - Income tax: capital gains: goodwill of a business (TR 96/16) states that goodwill of a business is a single CGT asset, and are not separate from 'site-goodwill', 'personal goodwill' or 'name goodwill' Paragraph 88 of TR 96/16 states site goodwill, personal goodwill, name goodwill and monopolies giving rise to goodwill are merely descriptions of the goodwill of a business and do not detract from the fact that goodwill is one CGT asset. Goodwill is a composite thing emanating from several sources working together. In this case, the Taxpayer owned the goodwill of the specialist medical practice and has disposed of the goodwill at the time of the sale of the practice to Company Z. The sale of the Taxpayer's specialist medical practice on DD MM YYYY to Company Z triggered a Capital Gains Tax event A1 under Section 104-10, in respect of the whole proceeds of the sale. The Taxpayer will be assessable on the capital gains made on their interest in the assets sold under the contract. | Summary: As the answer to question 1 is yes, question 2 is not applicable