Private ruling: Taxation of Financial Arrangement - Deferred Settlement Payment
Published: March 2014

Ruling: The ruling concerned the following: | 1. At the time the agreement was signed, did the taxpayer start to have a financial arrangement pursuant to section 230-45 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the payment that is required to be made in the future by the taxpayer pursuant to the agreement? | 2. If the answer to Question 1 is negative, immediately after Financial Close under the agreement, did the taxpayer start to have a financial arrangement pursuant to section 230-45 of the ITAA 1997 in respect of the payment that is required to be made in the future by the taxpayer pursuant to the agreement? | 3. If the answer to Question 1 or Question 2 is positive and assuming that the taxpayer enters into the federal income tax regime after entering into the financial arrangement in respect of the future payment but prior to the actual payment of the future payment, is the cost of the financial arrangement (in respect of the future payment) equal to the adjusted market value of the financial arrangement at the time when the taxpayer enters the federal income tax regime pursuant to section 57-30 of Schedule 2D to the Income Tax Assessment Act 1936 (ITAA 1936)? | 4. If the answer to Question 1 or Question 2 is positive, will a gain from the financial arrangement be included in the assessable income of the taxpayer under subsection 230-15(1) of the ITAA 1997 when the taxpayer ceases to hold the financial arrangement where the step 1 amount exceeds the step 2 amount in the balancing adjustment method statement in section 230-445 of the ITAA 1997? | 5. If the answer to Question 1 or Question 2 is positive, can the taxpayer deduct a loss from the financial arrangement under subsection 230-15(2) of the ITAA 1997 when the taxpayer ceases to hold the financial arrangement where the step 2 amount exceeds the step 1 amount in the balancing adjustment method statement in section 230-445 of the ITAA 1997? | The Commissioner ruled that: | 1. No. At the time the agreement was signed, the taxpayer did not start to have a financial arrangement pursuant to section 230-45 of the ITAA 1997 in respect of the payment that is required to be made in the future by the taxpayer pursuant to the agreement. | 2. Yes. Immediately after Financial Close under the agreement, the taxpayer started to have a financial arrangement pursuant to section 230-45 of the ITAA 1997 in respect of the payment that is required to be made in the future by the taxpayer pursuant to the agreement. | 3. Yes. If the answer to Question 1 or Question 2 is positive and assuming that the taxpayer enters into the federal income tax regime after entering into the financial arrangement in respect of the future payment but prior to the actual payment of the future payment, the cost of the financial arrangement (in respect of the future payment) is equal to the adjusted market value of the financial arrangement at the time when the taxpayer enters the federal income tax regime pursuant to section 57-30 of Schedule 2D to the ITAA 1936. | 4. Yes. If the answer to Question 1 or Question 2 is positive, a gain from the financial arrangement will be included in the assessable income of the taxpayer under subsection 230-15(1) of the ITAA 1997 when the taxpayer ceases to hold the financial arrangement where the step 1 amount exceeds the step 2 amount in the balancing adjustment method statement in section 230-445 of the ITAA 1997. | 5. Yes. If the answer to Question 1 or Question 2 is positive, the taxpayer can deduct a loss from the financial arrangement under subsection 230-15(2) of the ITAA 1997 when the taxpayer ceases to hold the financial arrangement where the step 2 amount exceeds the step 1 amount in the balancing adjustment method statement in section 230-445 of the ITAA 1997