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Chapter 13: Involuntary receipts

A case for reform

The current taxation rules for involuntary receipts do not result in consistent treatment of involuntary receipts based on a common set of principles. As a consequence, the existing taxation treatment of involuntary transactions will vary according to the nature and form of the transaction.

A strategy for reform

To pursue a simpler and more consistent treatment based on a common set of principles
for taxing involuntary receipts.

Reform option 1
Make no tax distinction between voluntary and involuntary receipts.

Reform option 2
Distinguish between involuntary and voluntary receipts on an equitable and consistent basis, and defer the tax liability on the former in certain circumstances.

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Key policy issues
Involuntary receipts would be taxed when received. Symmetrically, losses that arise from an involuntary event would be allowable, as either an income loss (wasting assets) or a capital loss. What is the appropriate boundary line for determining whether a transaction is voluntary? Interaction of the CGT and income tax provisions in relation to compensation receipts. What is a replacement asset? Maintaining pre-CGT status for replacement assets. Treatment of losses. Anti-avoidance rules.
- No boundary problems
- Consistent with income benchmark
- Symmetry between treatment of gains and losses

- Disadvantages
 Potential cash flow problems


What constitutes ‘compulsion’ where the parties have scope to agree.


Treatment of involuntary receipts that may be subject to ordinary income tax.


If an appropriate replacement asset is not acquired, whether grounds for denying rollover relief exist.


Appropriate rules to deal with more expensive replacement assets.


Whether losses could be realisable immediately upon involuntary disposal
or be deferred.


Whether generic value shifting rules for related parties would suffice.