Taxation Determination TD 95/54







This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). | 1. Yes, provided that the benefit of the restrictive covenant does not form part of goodwill on the sale of a business. | 2. Subsection 160M(6B) of the Income Tax Assessment Act 1936 applies to deem the person who acquires the restrictive covenant to do so when the covenant is granted. | 3. The reduced cost base under subsection 160ZH(3) is the amount paid for the restrictive covenant. | 4. On expiry of the restrictive covenant, a change in ownership is taken to have occurred (paragraph 160M(3)(b)), resulting in a disposal for nil consideration. On expiry the covenant, no longer being enforceable, has nil market value for the purposes of the deemed market value rules. This results in a capital loss equal to the amount paid for the restrictive covenant. The capital loss is incurred on the change in the ownership of the benefit (subsection 160U(4)), i.e., when the covenant expires. | Commissioner of Taxation 27/9/95 | Previously issued as Draft TD 95/D4


Related rulings: TR 95/3
Legislative references: ITAA 160M(3)(b) ITAA 160M(6)(b) ITAA 160M(6B) ITAA 160M(6B)(a) ITAA 160U(4) ITAA 160U(6)(a)(i) ITAA 160U(6)(b)(i) ITAA 160ZH(3)
Subject references: capital loss expiry goodwill restrictive covenant