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1 Are the advisor costs incurred by Company A deductible over X years under section 40-880 of the ITAA 1997?

1 Yes. Question 2 Are the bonuses incurred by Company A deductible under section 8-1 of the ITAA 1997? Answer 2 No. Question 3 If the answer to question 2 is 'no', are the bonuses deductible under section 40-880 of the ITAA 1997? Answer 3 Yes. This ruling applies for the following period: Year ending dd MMM 20XX to dd MMM 20XX The scheme commenced on: dd MMM 20XX

Summary Company A is an Australian incorporated company that is a resident of Australia. On dd MMM 20XX, the Shareholders agreed to sell their entire shareholding in Company A to the Buyer (Transaction). The agreed terms of the Transaction were set out in the Agreement dated dd MMM 20XX (agreement). Clause x of the Schedule states that no Group Company operates a bonus, profit share or employee incentive plan or scheme for its employees or officers. The completion date of the Transaction was dd MMM 20YY. Advisor costs Company A incurred $X of advisor costs encompassing Advisor advice, lawyers, financial due diligence and tax advice. There were two advisors involved in the Transaction •                     advisor A dealt with the selling aspect of the sale of Company A. •                     advisor B dealt with financial and tax due diligence Transaction Bonus Clause x of the Agreement defines the following terms. •                     Completion means settlement of the sale and purchase of the Shares in accordance with this agreement.

•                     Debt means, in respect of the Group as at the Effective Time, the aggregate of amounts for or in respect of ...(x) any unpaid Transaction Expenses. •                     Transaction Bonus means any bonus, profit share, incentive or similar payment payable by a Group Company to an officer, employee, contractor or consultant of or to the Group in connection with the transactions contemplated by this agreement, inclusive of any applicable on-costs. •                     Transaction Expense means ...(x) all Transaction Bonuses. Clause x of the agreement states that within 10 business days of Completion, the Buyer will procure that Company A pay the Transaction Bonuses to employees. The Shareholders decision to pay the Transaction Bonuses was made around one month before the completion date of the Transaction. There were no board minutes kept regarding the discussion on Transaction Bonus payments. The Shareholders agreed to make the payments and then the HR team implemented it. No advanced communication (other than to the Chief Financial Officer (CFO)) was made of the intended bonus payments to the employees.

There is no documented remuneration policy and the policy in relation to the Transaction Bonus was established as the Transaction progressed. There is no evidence of how each Bonus payment was calculated. There was no formula or method, other than employees had to have been employed for a minimum number of years. The Transaction Bonuses were paid on or around dd MMM 20XX to staff in a variety of roles across the business. Most employees who received the Transaction Bonus were not aware they were to receive a bonus until the Completion Date of the Transaction, when they were communicated to by management. The Transaction Bonuses averaged $xx per recipient, and the average tenure with Company A of the employees who received the Bonuses was x years. On or around dd MMM 20XX, each recipient of the Transaction Bonus received a letter titled 'Transaction Bonus' which outlined their entitlement to the payment in recognition for their contribution and efforts in connection with the Transaction but also in recognition for their contribution throughout their employment.

The Transaction Bonuses were based on the role performed by that recipient and their contribution to the business over their ownership. Those who were paid the larger sums were those who put in substantial extra effort above and beyond their ordinary roles during the Transaction to keep the business running and growing. The employees who were paid the Transaction Bonus engaged in activities such as overseeing the operations and engaging in decision-making about important business strategies, so the business continues to derive income. All employees who received the Transaction Bonus had been employed by Company A for a minimum number of years with the longest serving having been employed for xx years. These employees had played a key role in the Transaction or were instrumental in continuing the drive the sales and financial performance of the business along with product innovation and creating relationships with new customers. Other facts Company A employees had historically not been paid bonuses, other than commissions in respect of people in sales roles.

Clause x of the Agreement required the Buyer to request a ruling from the Commissioner of Taxation regarding the deductibility of Transaction Expenses if requested to do so by the Sellers. Since inception, Company A has carried on business in Australia and has derived assessable income. Company A does not and will not generate significant amounts of NANE or exempt income. Income generated from its business activities are included in assessable income.

Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 subsection 40-880 Does IVA apply to this private ruling? Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. If you want us to