Question
Hydraulics Pty Ltd enters into manufacturing contracts with various companies. It receives $2,000,000 compensation in connection with the cancellation of a contract made in the
Hydraulics Pty Ltd enters into manufacturing contracts with various companies. It receives $2,000,000 compensation in connection with the cancellation of a contract made in the course of the company's business with Tonakit Pty Ltd. The contract would have taken up 12% of Hydraulics' manufacturing capacity for the next two years and provided it with revenue of $3,000,000 over that period.Would Hydraulics be assessed on the compensation received?
A.a) Yes, but only the amount that relates to the lost income, not the whole $2,000,000
B.b) Yes, because it is paid to compensate for lost revenue
C.c) No, because it is a capital payment.
D.d) No, compensations for contract cancellation are not assessable at all
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