Capital Gains Tax Liability - Sale of the Motel business - Nick and Sally Business Case Study Assignment Answer

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Nick and Sally Business Case Study Assignment Answer

TASK:  Question 6 Nick sold his consultancy business in April 2019 and he wants advice about his capital gains tax liability in light of the following: 1. Nick started his business in 2007 when he purchased a building freehold for $600,000 and he has carried on his business continuously in this building since then until the business was sold in April 2019. 2. The business has had a current annual turnover of $2,400,000 (excluding GST). This figure has remained virtually the same over the last 3 years. 3. Nick sold his business for $4,200,000 (excluding GST). Of this $4,200,000, $3,200,000 relates to the building and the remaining $1,000,000 relates to other business assets including business goodwill. 4. The tax adjustable value of the business plant and equipment at the time of the business sale was $300,000 and of the $1,000,000 shown above for the other business assets $300,000 is allocated to the sale of this plant and equipment at its tax adjustable value. 5. The remaining $700,000 of the $1,000,000 shown above was allocated to the business goodwill. 6. Nick owns a portfolio of shares with a current market value of $480,000. 7. Nick also holds 45% of the shares in EazyEats Pty Ltd, a company that owns a catering business. The next largest shareholder owns 30% of this company. The total net assets of EazyEats Pty Ltd have a fair market value of $500,000. 8. Nick is also a beneficiary in the Nick and Lilly Family Trust and he has received distributions from this Trust over the previous 4 years, as follows: $4,000 in 2016 (when the Trust had tax net income of $20,000) and $5,000 in 2017 (when the Trust had a tax net income of $12,000). The net assets of the Trust as of April 2019 were $300,000. 9. Nick also estimates that 20% of his home is used for his business and that the home is presently worth $600,000. Nick currently has a loan of $100,000 for the home. 10. Nick’s wife, Lilly, owns and carries on a florist business as a sole trader in her own name, which has total net assets of $350,000. Nick and Lilly consult each other regularly about the decisions concerning the running of both businesses. 11. Nick is aged 52 and he may buy another business in the future. Required Provide advice to Nick on what his net capital gain is likely to be, after applying any relevant discounts and concessions for which he may be eligible. Question 7 Sally has carried on a motel business for the last 10 years and is now selling this business to Helen. A written contract for sale is prepared and it is agreed in the written contract terms that the supply will be of a going concern. Under those terms, Sally agrees to supply to Helen the motel business goodwill, the business name and all other required items to carry on the business. Sally has also agreed to be an employee in the business after its sale for a period of 1 year. As Sally has not had a holiday for the last 10 years, Sally decides to temporarily shut down the motel business for 2 months before the settlement date, which is the quiet winter period of trading and to restart the business the day after the settlement date. Required Discuss whether or not the sale of the motel business from Sally to Helen is subject to GST.

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