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CB 30: Disposal of patent applications or patent rights
or “Money from selling patent applications or rights counts as income”
You could also call this:

“Income from transferred employee costs when buying a business”

When someone sells their business, they might transfer some of their employee-related financial responsibilities to the buyer. This is called a ‘transferred employment income obligation’. If the amount the seller reduces the price by is more than what the buyer actually pays for taking on these responsibilities, the extra money becomes income for the buyer.

You need to include this extra money as income in the same year that you, as the buyer, have to recognise the reduction in the transferred obligation in your accounting records. This is based on generally accepted accounting practices.

For example, if the seller reduces the price by $10,000 for employee-related costs, but you only end up paying $8,000 for these costs, the $2,000 difference is considered your income. You would report this $2,000 as income in your tax return for the year when you recognise the $8,000 reduction in your accounting books.

This rule is linked to section DC 10, which talks about how to handle these transferred employment income obligations when selling a business.

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or “Tax rules for stolen property”
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Part C Income
Income from business or trade-like activities: Exclusion for investment land

CB 31Disposal of business: transferred employment income obligations

  1. This section applies when section DC 10 (Disposal of business: transferred employment income obligations) applies and the reduction in the consideration is more than the amount the buyer actually pays for the transferred obligation.

  2. The excess is income of the buyer.

  3. The income is allocated to the income year in which the reduction of the transferred provision is required to be recognised by the buyer under generally accepted accounting practice.

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Notes
  • Section CB 31 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
  • Section CB 31(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).