The Assistant Treasurer has requested the Board of Taxation to review ,among others,the deductibility of tax cost setting amount allocated to ‘right to future income’ (RTFI) asset when an entity that holds the asset joins a consolidated group on being purchased by the head company.
As a result of amendments made last year under the Tax Laws Amendment (2010 Measures No 1) Act 2010, deductions were allowed for tax cost setting amounts of RTFI assets, to the acquirer of the entity owning the assets over the life of the relevant contract for receiving future income or 10 years (whichever is earlier)[ s 716-405 of ITAA 1997].
A late integrity measure was introduced in the form of section 701-90 of ITAA 1997 (after passing the House and when in the Senate). According to this section, deduction will not be available unless the RTFI asset is a separate asset. A RTFI asset will be a separate asset only if there is a ‘valuable right to future income’ with a market value greater than nil. A valuation became a prerequisite for a claim for deduction.
Now there is a rethink with the Board of Taxation reviewing the position, which may result in replacing the deduction with an addition to the cost base of the asset to be offset when the asset is subsequently sold by the acquirer- see M&A backflip leaves companies in limbo.