Private ruling: CGT - C2 event
Date of advice: 22 July 2025
Published: 15 September 2025
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

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 franchise Agency Agreement contract was entered into which resulted in the cancellation, surrender of the franchise OMB Agency Agreement asset. | Q2: Does the Deed of Termination of Agency Agreement satisfy as an active asset under section 152-40 of the ITAA 1997? | A2: Yes. The franchise Agency Agreement rights are an active asset in accordance with section 152-40 of the ITAA 1997. As the franchise Agency Agreement asset was used or held ready for use in a business that was carried on by you.

Relevant facts and circumstances: The Company was incorporated after 20 September 1985. Since incorporation, the majority ownership has remained within the family structure. The underlying ownership has changed throughout the years. In 20YY, the Company entered an agreement to operate a franchise located in State x. Various agreements have existed over the years between the franchisor and the Company. The agreement allowed the Company to operate a franchise situated in State x. On termination with franchisor the following agreements were in place with the company: • Franchise Agreement • Variation Deed 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 their 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