Connect-IT is an Australian mid-tier Telecommunications Company specialized in providing mobile coverage and network infrastructure services in
Question:
‘Connect-IT’ is an Australian mid-tier Telecommunications Company specialized in providing mobile coverage and network infrastructure services in Victoria and South Australia.
In August 2017, one of its corporate clients ‘VicInvest’ decided to move to another mobile provider and negotiated the full termination of their contract, which included corporate mobile accounts and other corporate mobility services.
The parties agreed on the payment of a termination fee calculated on the estimated loss of profits for the next year, which amounted to a total of $7,500,000. This amount was to be paid in two equal installments: the first one by 10 December 2017, and the second one by 10 July 2018.
The contract still had 4 years to run and the impact to Connect-IT’s annual revenue was estimated to be 40%.
Required:
Advice Connect-IT on the tax treatment of the payments received from VicInvest for the year ending 30 June 2018, applying legislation and case law to support your answer.
Valuation Measuring and managing the values of companies
ISBN: ?978-0470424704
5th edition
Authors: Mckinsey, Tim Koller, Marc Goedhart, David Wessel