--- title: "Earn-Outs and Deferred Payments in a Business Sale | Astris Law" url: https://www.astrislaw.com/article/earn-outs-deferred-consideration-business-sale description: "How earn-outs and deferred payments work in a Queensland business sale: the measure, seller protections, tax and duty in outline, security and disputes." lang: en-AU --- Skip to main content ← Back to Articles: https://www.astrislaw.com/articles | Corporate & Commercial →: https://www.astrislaw.com/commercial-lawyers-brisbane Insights 4 November 2026 • 10 min read # Earn-Outs and Deferred Payments in a Queensland Business Sale: Measure, Security and Disputes ## Summary A guide for the seller who has been offered part of the price as an earn-out or a deferred payment, for the buyer proposing one to bridge a price gap and for the accountant modelling it. It covers how the measure is chosen and what each choice lets the other side do to the number, the protections each side asks for, the tax and duty points in outline, how a deferred payment is secured and how earn-out disputes are usually resolved. Last reviewed 4 November 2026 · Reviewed by Jamie Nuich (https://www.astrislaw.com/attorney/jamie-nuich), Legal Practitioner Director ## Key Takeaways - An earn-out pays part of the price on a formula tied to performance after completion; a deferred payment is a fixed sum paid later. The first carries performance risk as well as credit risk and the second credit risk alone; the two are also taxed differently. - Revenue, gross margin, EBITDA and customer retention each invite a different kind of gaming, and the accounting policies clause is where it is closed off. - Australian law gives a seller no settled implied duty of good faith to fall back on, so the conduct covenants and the remedy for breaking them have to be written into the agreement. - Subdivision 118-I of the Income Tax Assessment Act 1997 (Cth) treats a qualifying earn-out as part of the original sale proceeds. Queensland duty on an asset sale is assessed up front, on the highest consideration payable under the agreement or the unencumbered value of the assets, whichever is higher, and on the unencumbered value alone where no highest figure can be fixed. - A deferred payment is unsecured unless the contract secures it: a registered security interest, a deed of priority with the buyer's bank, guarantees and escrow each do different work, and an interest that is not registered is lost if the buyer goes into administration or liquidation. Image: Two people shaking hands across a cafe table with papers between them, illustrating a business sale agreed with part of the price paid as an earn-out (https://www.astrislaw.com/images/articles/handshake-deal-cafe.jpg) In This Article 1. 1. When does a business sale need an earn-out? 2. 2. Which measure should the earn-out use? 3. 3. What protections does a seller ask for, and what does the buyer answer? 4. 4. How is an earn-out taxed, and does Queensland duty apply? 5. 5. How is a deferred payment secured, and what happens if it is not? 6. 6. How are earn-out disputes resolved? 7. 7. What to do now 8. 8. Where your own term sheet takes over 9. 9. Frequently Asked Questions An earn-out pays part of the price of a business after completion on a formula tied to how the business performs under its new owner; a deferred payment is a fixed sum paid later. Both bridge the gap between what a seller thinks the business is worth and what a buyer will pay on the day, and both shift risk onto the seller. Astris Law in Brisbane reads these terms with sellers, buyers and their accountants; this guide sets out what each side is negotiating over. ## When does a business sale need an earn-out? When the parties agree on the multiple but not on the number it applies to. A seller pricing on a forecast and a buyer paying on history can be far apart, and an earn-out lets the buyer pay the higher figure only if the forecast arrives. Clifford Chance's May 2026 review (https://www.cliffordchance.com/briefings/2026/05/whats-market-earn-outs-in-australian-m-and-a.html) of Australian M&A reports earn-outs being used more often as buyers push valuation risk back onto sellers, and the tax rules described below put a practical outer limit of five years on the period. The heads of agreement (https://www.astrislaw.com/article/heads-of-agreement-business-sale) records the earn-out in outline and the contract carries the formula. A fixed sum payable in a year is a deferred payment, not an earn-out: it carries credit risk only, and it is taxed differently. ## Which measure should the earn-out use? Each measure can be moved by a different party, so settle the measure before the multiple. The usual measures are revenue, gross margin, earnings before interest, tax, depreciation and amortisation (**EBITDA**) and customer retention. | Measure | What it rewards | How it can be moved | The usual answer | | --- | --- | --- | --- | | Revenue | Growth, whoever funds it | A seller still in charge discounts and pulls sales forward; a buyer routes customers to group entities | Exclude low-margin sales; count group sales to the acquired customers | | Gross margin | Growth with pricing discipline | Changed supplier terms, product mix or cost classification | Fix the accounting policies | | EBITDA | Profit after the buyer's costs | Management fees, shared services, integration costs, changed depreciation | Add back group charges; cap allocated costs | | Customer retention | Continuity of the client base | Pricing or service changes that lose clients; who counts as retained | Fix the customer list at completion and define "retained" | ## What protections does a seller ask for, and what does the buyer answer? A seller asks for an accounting policies clause with a stated hierarchy (specific agreed policies, then the seller's historical policies, then the Australian Accounting Standards), for the business to be ring-fenced with its own accounts and a cap on group charges, for information and audit rights and for a covenant that the buyer will run the business in the ordinary course without changing pricing, staffing, suppliers or structure in a way that depresses the measure. It also asks for acceleration, or a deemed maximum payment, if the buyer sells the business, changes control or dismisses the seller without cause. The buyer answers that it bought the business to integrate it and that any covenant should be reasonable endeavours against an agreed plan, with carve-outs for what the law requires or the seller approves. The wording matters because Australian law gives a seller no settled implied duty of good faith to rely on instead. In _SSABR Pty Ltd v AMA Group Ltd_ [2023] NSWSC 1551 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2023/1551.html) the buyer aligned a key customer's arrangement with its wider group after completion, the earnings behind the earn-out fell and the seller's claims based on pre-contract representations and an implied duty of good faith failed on the facts. The covenants therefore have to be written in, with the consequence of a breach stated, whether an adjustment of the measure or a deemed payment. ## How is an earn-out taxed, and does Queensland duty apply? In outline, a qualifying earn-out is taxed as part of the original sale and Queensland duty on an asset sale is assessed up front on the whole price; the detail of either needs its own advice. Subdivision 118-I of the _Income Tax Assessment Act 1997_ (https://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.565.html) (Cth) treats a qualifying look-through earnout right as part of the original sale: each payment is added to the seller's capital proceeds for the year of sale, so the earlier return is amended, and small business capital gains tax (**CGT**) concession choices can be remade before the return for the year in which the payment arrives is lodged. The Australian Taxation Office lists the conditions: the asset sold is an active asset, the benefits are not reasonably ascertainable when the right is created, they are contingent on and reasonably related to the future economic performance of the asset or a related business, the parties deal at arm's length and the benefits can only be provided over a period ending no later than five years after the end of the income year of the CGT event. Where shares or units are sold, at least 80 per cent of the entity's assets by market value must be active. A right that fails the conditions is taxed on its market value at the time of sale; a fixed deferred payment is simply proceeds taxed in the year of sale. Queensland duty on an asset sale is assessed when the agreement is signed, not when the last payment arrives. Under s 502 (https://classic.austlii.edu.au/au/legis/qld/consol_act/da200193/s502.html) of the _Duties Act 2001_ (Qld), consideration that may rise or fall on a contingency is taken to be the highest consideration payable, and s 11 (https://classic.austlii.edu.au/au/legis/qld/consol_act/da200193/s11.html) fixes the dutiable value at the greater of the consideration and the unencumbered value of the property. A capped earn-out is therefore dutiable on the up-front sum plus the cap, or on the unencumbered value of the business assets if that is higher; where no highest figure can be ascertained at all, the unencumbered value applies, as _Resolute Mining Ltd v Commissioner of State Revenue_ [2020] QSC 281 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QSC/2020/281.html) confirms. Our share sale and asset sale comparison (https://www.astrislaw.com/article/share-sale-vs-asset-sale-australia) covers which assets are dutiable. ## How is a deferred payment secured, and what happens if it is not? A seller owed money after completion is an unsecured creditor of the buyer unless the contract makes it more. The usual package is a general security agreement over the buyer's assets, sometimes a charge over the shares in the buyer or the target, guarantees from the buyer's directors or parent and, for a fixed sum, money held in escrow. The security interest is registered on the Personal Property Securities Register (**PPSR**) under the _Personal Property Securities Act 2009_ (Cth) (**PPSA**). Where the buyer is a company, s 588FL (https://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s588fl.html) of the _Corporations Act 2001_ (Cth) means a security interest registered more than 20 business days after the security agreement came into force vests in the company if it enters administration or liquidation within six months of the registration, unless the court has extended time under s 588FM, and an interest never registered is lost under s 267 (https://classic.austlii.edu.au/au/legis/cth/consol_act/ppsa2009356/s267.html) of the PPSA on administration or liquidation. Registration does not by itself put the seller ahead of the bank either. Under s 55 (https://classic.austlii.edu.au/au/legis/cth/consol_act/ppsa2009356/s55.html) the earlier registration wins between ordinary security interests, so a bank registered before completion outranks a seller who registers at completion. The exception is security the seller takes over the assets it sold, to secure their unpaid price: that is a purchase money security interest under s 14 (https://classic.austlii.edu.au/au/legis/cth/consol_act/ppsa2009356/s14.html) and, if it is registered as one within the time s 62 (https://classic.austlii.edu.au/au/legis/cth/consol_act/ppsa2009356/s62.html) allows, it ranks ahead of the bank's earlier registration in those assets. It does not reach the rest of the buyer's property, which is why the usual answer is still a deed of priority signed by the bank. See our guides to PPSA registration (https://www.astrislaw.com/article/ppsa-security-interests-registration) and the priority rules (https://www.astrislaw.com/article/ppsa-priority-rules-enforcement); the guarantee side is covered on our page about a personal guarantee being called in (https://www.astrislaw.com/situation/personal-guarantee-called-in). ## How are earn-out disputes resolved? Most agreements send a dispute about the earn-out statement to an independent accountant acting as an expert, not an arbitrator, whose determination is final and binding absent manifest error. In _Bagata Pty Ltd v Sunstorm Pty Ltd_ [2024] QCA 17 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2024/17.html) the Queensland Court of Appeal read manifest error as an error of fact or law apparent on the face of the determination or its reasons. The ground that most often succeeds is that the accountant did not do what the contract asked: in _Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd_ [2015] NSWCA 275 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWCA/2015/275.html) a determination that applied the wrong meaning of a contractual formula did not bind. The clause should define the accountant's task narrowly and require reasons. Set-off is the other front: a buyer with a warranty claim (https://www.astrislaw.com/article/warranties-and-indemnities-business-sale-agreement) will want to withhold it from the next instalment. The agreement should say whether it can, because without words either way a buyer may argue that a closely connected claim can be set off in equity; sellers usually exclude set-off except for claims that have been agreed or determined, cap the amount withheld and require the balance to be paid on time. ## What to do now 1. Before the heads of agreement, model the formula with the accountant on the last two years' figures and see what each definition does to the payment. 2. Before signing the contract, read the accounting policies clause against the last accounts and check who controls the business during the period. 3. Before completion, search the PPSR for the buyer's existing security holders and the Australian Securities and Investments Commission register for its officers and shareholders, then ask which financier will sign a deed of priority. If you will take security over the assets you are selling, diarise the PPSA deadline for registering it as a purchase money security interest: before the buyer takes possession for stock and within 15 business days of possession for other goods. ## Where your own term sheet takes over Whether your earn-out should run on revenue or on earnings, how far the buyer's hands can be tied and what the deferred sum can be secured against are decided by the business itself and by the buyer's structure, and this guide cannot read either of those for you. If an earn-out or a deferred payment is on the table in your business sale (https://www.astrislaw.com/situation/business-sale-acquisition), call (07) 3519 5616 (+61735195616) and put the term sheet in front of Jamie Nuich at Astris Law before the formula is fixed. ## Frequently Asked Questions ### What is the difference between an earn-out and a deferred payment? An earn-out is contingent on performance after completion and may never be paid in full; a deferred payment is a fixed sum paid on a fixed date. Only a contingent, performance-linked right can qualify for look-through treatment under Subdivision 118-I. ### Can a buyer set off a warranty claim against an earn-out payment? The agreement should say so either way. Without an express clause a buyer may argue that a closely connected claim can be set off in equity, so sellers usually exclude set-off except for claims that have been agreed or determined, cap the amount withheld and require the rest to be paid when due. ### How long can an earn-out run? As long as the parties agree, but look-through treatment under Subdivision 118-I is only available where the payments can only be provided over a period ending no later than five years after the end of the income year in which the sale happens, so a seller who wants that treatment keeps the earn-out inside that window. ## Sources and References - Legislation Income Tax Assessment Act 1997 (Cth), Subdivision 118-I (look-through earnout rights), s 118-565 (https://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.565.html) - Legislation Duties Act 2001 (Qld), s 502 (contingent consideration) (https://classic.austlii.edu.au/au/legis/qld/consol_act/da200193/s502.html) - Legislation Duties Act 2001 (Qld), s 11 (dutiable value) (https://classic.austlii.edu.au/au/legis/qld/consol_act/da200193/s11.html) - Legislation Personal Property Securities Act 2009 (Cth), s 14 (purchase money security interests), s 55 (priority), s 62 (priority of purchase money security interests) and s 267 (vesting of unperfected security interests) (https://classic.austlii.edu.au/au/legis/cth/consol_act/ppsa2009356/s267.html) - Legislation Corporations Act 2001 (Cth), s 588FL (security interests registered late) (https://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s588fl.html) - Case law Bagata Pty Ltd v Sunstorm Pty Ltd [2024] QCA 17 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2024/17.html) - Case law Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd [2015] NSWCA 275 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWCA/2015/275.html) - Case law SSABR Pty Ltd v AMA Group Ltd [2023] NSWSC 1551 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2023/1551.html) - Case law Resolute Mining Ltd v Commissioner of State Revenue [2020] QSC 281 (https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QSC/2020/281.html) - Regulator Australian Taxation Office, Guide to capital gains tax 2026: Earnout and deferred consideration arrangements (https://www.ato.gov.au/forms-and-instructions/capital-gains-tax-guide-2026/about-capital-gains-tax/earnout-and-deferred-consideration-arrangements) - Regulator Queensland Revenue Office, Transfer duty on business assets (https://qro.qld.gov.au/duties/investors/business/assessing/) - Other Clifford Chance, What's Market: Earn-outs in Australian M&A (8 May 2026) (https://www.cliffordchance.com/briefings/2026/05/whats-market-earn-outs-in-australian-m-and-a.html) Share Share on LinkedIn (https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fwww.astrislaw.com%2Farticle%2Fearn-outs-deferred-consideration-business-sale)Share on X (https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.astrislaw.com%2Farticle%2Fearn-outs-deferred-consideration-business-sale&text=Earn-Outs%20and%20Deferred%20Payments%20in%20a%20Queensland%20Business%20Sale%3A%20Measure%2C%20Security%20and%20Disputes)Share on Facebook (https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fwww.astrislaw.com%2Farticle%2Fearn-outs-deferred-consideration-business-sale) This article is for general information purposes only and does not constitute legal advice and should not be relied on as such. While we take reasonable care to ensure the accuracy of the information provided, we make no representations or warranties as to its completeness, currency or reliability. We accept no liability for any loss or damage arising directly or indirectly from the use of, or reliance on, this website's content. You should always seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation. Astris Law is not a registered tax agent and does not provide tax advice. References to tax law in this article describe the legal framework only. For tax advice specific to your circumstances, consult your registered tax agent or accountant. Related Practice Area Corporate & Commercial https://www.astrislaw.com/commercial-lawyers-brisbane ## Offered an earn-out, or proposing one? The measure, the covenants and the security either fit the business and the buyer or they do not, and that only shows on the proposal itself. Send the term sheet to Jamie Nuich before it is signed, or call (07) 3519 5616 and talk it through first. (07) 3519 5616: +61735195616 Send an enquiry: https://www.astrislaw.com/contact ## Related Articles Insights ### 50/50 Shareholder Deadlock: Exit Clauses and What a Court Can Do Without Them Read more https://www.astrislaw.com/article/shareholder-deadlock-50-50-company-exit-options Insights ### How long and how wide can a restraint on a Queensland business seller run? Read more https://www.astrislaw.com/article/restraint-of-trade-business-sale-queensland Insights ### Warranties and Indemnities in a Queensland Business Sale: Caps, Claim Periods and Disclosure Read more https://www.astrislaw.com/article/warranties-and-indemnities-business-sale-agreement Book a call back (+61735195616) ## Structured data ```json [ { "@context": "https://schema.org", "@type": [ "LegalService", "LocalBusiness" ], "@id": "https://www.astrislaw.com/#organization", "name": "Astris Law", "legalName": "Astris Law Pty Ltd", "alternateName": [ "Astrons General Counsel", "Phronesis Litigation", "HeadStart Counsel" ], "url": "https://www.astrislaw.com", "logo": { "@type": "ImageObject", "url": "https://www.astrislaw.com/android-chrome-512x512.png", "width": 512, "height": 512 }, "image": "https://www.astrislaw.com/android-chrome-512x512.png", "description": "The Astris Law group gives directors and business owners the right legal capability for whatever their business needs, across corporate, disputes and regulatory. 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Only a contingent, performance-linked right can qualify for look-through treatment under Subdivision 118-I." } }, { "@type": "Question", "@id": "https://www.astrislaw.com/article/earn-outs-deferred-consideration-business-sale#faq-2", "name": "Can a buyer set off a warranty claim against an earn-out payment?", "acceptedAnswer": { "@type": "Answer", "text": "The agreement should say so either way. 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