Lately i have been having a debate with peers in relation to the tax treatment on transfer payment of a provision account.
Hypothetically, 2 unrelated companies, under some kind of business restructure agreement or deal, Co A transfers its Provision account on its book to Co B, and pays B the amount of net book value to compensate its future liability.
My peer insists it has no tax impact on both parties based on the contingent nature of Provision accounts.
I disagree. I would think it should be deductible to Co A and assessable to Co B, based on the fact that the payment constitutes an obligation which can be presently referable to current income year.
Any thoughts and references? any feedback would be highly appreciated.
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i always like your question but really hate to answer or find an answer
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正解。。这种的 4大 transferring department 才能回答的问题，我等p民 不求解。。。简直就是在浪费生命啊。。
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the answer is rather straight forward.
For this type of transfer arrangements, the most common one is transfer payment for provision of annual leave or long service leaves, and there is a specific statute rule for it.
section 26-10(2) of ITAA97 specifies that transfer payment for leave provision is deductible in hands of transferor and section 15-5 of ITAA97 treats this transfer payment as assessable at the hand of transferee.
Although there is no statute rule for other provision transfer payments, the spirit of law should apply the same way. Furthermore, as i previously elaborated, the payment obligation has been crystallised and the taxing period can be presently referable to the year when the transfer payment is taken place, the transfer payment therefore should be deductible to the transferor and assessable to the transferee.
BTW Big 4 is often overrated, the peer debating with me was a former big4 tax manager, however he clearly didn't appreciated this statute rule for these type of transfer payment. (he was specifically debating with me that the transfer payment for leave provision is not deductible, while the statute states otherwise).
However, the next thought i am having now when i am typing this, I am thinking whether any CGT implication should be considered, if provision transfer payments are not specified as an ordinary income under statue.
Not likely i know, but if it would....
would it be a CGT event A1 or other event? would the underlying provision account be a CGT asset? or would the obligation to pay be a CGT asset?
I think i am going sleep on this tonight:)
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tuhao~can we make friends
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你还有时间搞笑啊
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哈哈
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We are friends, aren't we? At least I thought so. Don't u think so too？
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日子吗，笑着，过了。不笑，也过了。还是笑着过好
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finally see you type chinese....
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