Private ruling: CGT - sale proceeds - settlement - extension of time
Date of advice: 20 April 2026
Published: 6 July 2026
Ruling period: Year ended 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 July 2020

Ruling: Q1: Is your share of the settlement amounts (excluding interest) considered to be additional capital proceeds received in relation to the CGT event that happened when you disposed of your rights under the agreement with the company under subsection 116-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Is the interest component of the settlement amount you received included in your assessable income as ordinary income under section 6-5 of the ITAA 1997 in the income year it is received? | A2: Yes. | Q3: Will the Commissioner exercise the discretion in subsection 152-125(4) of the ITAA 1997 to extend the time limit for you to make payments in relation to the section [section 152-110] exempt amount to the CGT concession stakeholder until 30 June 20YY? | A3: Yes.

Relevant facts and circumstances: You were an authorised representative of the financial services company (the company) for over 30 years. The company was the owner or the register rights and limited your rights as an authorised representative to: (a) the right to contact and provide advice and other financial services and credit services to the Clients; (b) the right, but subject to the Privacy Act 1988 (Cth), to access to the Client Records; and (c) the right to receive remuneration. You decided to exit the financial services industry and made an application under the contractual agreement with the company, which specifically allowed you to sell your rights as an authorised representative back to the company in exchange for a price calculated by a multiple of revenue received in the previous 12 months. The company unilaterally purported to amend the multiples in the contractual agreement with immediate effect. The changes were applied to practices that had lodged applications under the contractual agreement with exercise dates after that day with the company before they unilaterally amended the multiples, those applications could not be withdrawn without the company's consent. A large number of authorised representatives of the company were disgruntled with this alteration and legal proceedings commenced. The parties attended a mediation resulting in the authorised representatives and the company entering into a binding Heads of Agreement to settle the proceeding, subject to the approval of the Court. They subsequently entered a more formal deed of settlement (formal deed). The headline effect is that the company agrees to pay an amount (resolution sum) in full and final settlement in exchange for a release of liability. The Court ruled that the settlement should be approved and that the orders should be made with respect to the distribution of the resolution sum. It ruled that the company did not effectively amend the relevant policy to introduce the changes and that breached the authorised representative agreements of relevant group members. You received an interim settlement payment which included an interest component 4 years after your original application to sell back your contractual rights to the company and expect to receive a final payment before the end of the following year. You applied the small business 15-year exemption to the capital gain you made on the disposal of your rights as an authorised representative back to the company.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section116-20 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 section 152-125

Reasons for decision: Summary: Your share of the settlement amounts (excluding interest) are considered to be additional capital proceeds received in respect of to the CGT event(s) that happened when you disposed of your rights under the agreement with the company. | Detailed Reasoning - Detailed reasoning: The capital proceeds from a CGT event includes the money you have received, or are entitled to receive, in respect of the event happening (subsection 116-20(1) of the ITAA 1997). Taxation Ruling TR 95/35 Income tax: capital gains: treatment of compensation receipts (TR 95/35) discusses the CGT implications for compensation receipts. Paragraph 70 of TR 95/35 provides that in determining the most relevant asset in respect of which the compensation has been received, it is often appropriate to adopt a 'look-through' approach to the transaction which generates the compensation receipt. The 'look-through' approach is the process of identifying the most relevant asset. It requires an analysis of all of the possible assets of the taxpayer in order to determine the asset to which the compensation amount is most directly related (paragraph 3 of TR 95/35). If an amount of compensation is received by a taxpayer wholly in respect of the disposal of an underlying asset, or part of an underlying asset, of the taxpayer the compensation represents consideration received on the disposal of that asset. In these circumstances, we consider that the amount is not consideration received for the disposal of any other asset, such as the right to seek compensation (paragraph 4 of TR 95/35). Example 7 of TR 95/35 illustrates a situation where an amount is received after the disposal of an asset as compensation for an earlier breach that affected the consideration received on disposal. In that example, the compensation amount is treated as additional capital proceeds from the original disposal, rather than as proceeds from a separate CGT event relating to the right to seek compensation. Applying the look-through approach in your case the relevant CGT asset(s) are the rights you had under the agreement with the company. A CGT event(s) happened in the year ended 20YYYYY when you disposed of these right(s) to the company. The legal proceeding and subsequent settlement arose because the company purported to amend the Policy in a way that reduced the amount payable to you as an authorised representatives on exit. The Court found that the company did not validly amend the policy and that its conduct resulted in a breach of the relevant agreements. The settlement amount (excluding interest) represents compensation paid by the company to you to address the shortfall between the consideration you actually received on exit and the consideration that should have been received had the company applied the correct revenue multiple under the original Policy. Your circumstances are comparable to the taxpayer in Example 7 of TR 95/35. The settlement amounts (excluding interest) you received (or will receive) most relevantly relate to the disposal of your rights to the company. It is not consideration for the creation or disposal of a separate asset, such as the right to seek compensation. Rather, it is additional consideration received in respect of the earlier disposal. As such, your share of the settlement amounts (excluding interest) are considered additional capital proceeds under subsection 116-20(1) of the ITAA 1997 in respect of the CGT event(s) that happened when you disposed of your rights to the company. | Summary: The interest component of the settlement amount is ordinary income and is included in your assessable income in the year it was received. | Detailed Reasoning - Detailed reasoning: Your assessable income includes income according to ordinary concepts, which is called ordinary income (subsection 6-5(1) of the ITAA 1997). If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year (subsection 6-5(2) of the ITAA 1997). In working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct (subsection 6-5(4) of the ITAA 1997). The interest component of the amount you received under the settlement is not considered to be part of the additional capital proceeds received for the disposal of your rights under the agreement with the company. The interest amount can be separately identified as interest and is considered to be ordinary income that you derived when it was received. As such, it is included in your assessable income in the financial year it was received. | Summary: The Commissioner will exercise the discretion to allow you more time to make payments relating to the additional exempt amounts to the CGT concession stakeholder. | Detailed Reasoning - Detailed reasoning: Under subsection 152-125(4) of the ITAA 1997 the Commissioner may extend the two-year time limit for a company to make payments relating to an exempt amount to a CGT concession stakeholder. In determining whether to allow an extension of time, the Commissioner considers the following factors: • whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension • whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension) • whether there is any unsettling of people, other than the Commissioner, or of established practices • the need to ensure fairness to people in like positions and the wider public interest • whether there is mischief involved, and • the consequences of the decision. In your case, the delay arose as a result of the court proceedings and the deed of settlement process extending beyond the 2-year period. Having regard to your circumstances the Commissioner is satisfied there is an acceptable explanation for the delay in making the payments. Additionally, the Commissioner is satisfied there is no prejudice, no unsettling of other taxpayers, no issues of fairness and no concerns of mischief involved. On balance, it is considered fair and equitable to allow you further time to make payments relating to the exempt amount to the CGT concession stakeholder. As such, the Commissioner will exercise the discretion in subsection 152-125(4) of the ITAA 1997 to extend the two-year time limit to DD M YYYY.