Private ruling: Business - deductions
Date of advice: 16 May 2024
Published: 24 June 2024
Date scheme commenced: 1 July 2022

Ruling: Q1: Is the trust entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the amounts paid to the purchaser for annual leave, personal leave and long service leave? | A1: Yes, in this case the trust has made an accrued leave transfer payment to the purchaser and is therefore entitled to a deduction under section 8-1 of the ITAA 1997 for the amounts paid to the purchaser for annual leave, personal leave and long service leave in the 2023 financial year. | Q2: Are the proceeds from the capital gains tax (CGT) event the gross proceeds per the contract of sale without any adjustments for the leave payments? | A2: Yes, section 103-10 of the ITAA 1997 explains that Parts 1-3 and 3-3 of the ITAA 1997 will apply to the trust as if they had received money if it has been applied for the trust's benefit or as the trust directs. In this case the capital proceeds from the CGT event are the gross proceeds per the contract of sale. This private ruling applies for the following period: Year ended 30 June 2023 The scheme commenced on: 1 July 2022

Relevant facts and circumstances: The trust commenced a business. In the 2022-23 financial year the trust entered into a contract for the sale of its business. The sale price for the business was $X. Settlement occurred in the 2023-24 financial year. The settlement calculations and settlement sums allowed for any adjustments to be made between the vendor and the purchaser for stock, till float, rent prepaid and leave entitlements transferred to the purchaser. Special conditions to the contract required the trust to pay the vendor amounts for accrued leave, personal leave and long service leave. As a result of this clause amounts for annual leave and personal leave were subtracted from the settlement sum that was to be paid to the trust. Long service leave was later paid to the purchaser from monies held in trust by the solicitor.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-10 | Income Tax Assessment Act 1997 section 103-10