- Blackstone Pty Ltd: Established in July 2002 as "Gold & Silver Jewellery."
- Shareholders: Ted Gold (35 shares), Mary Gold (35 shares), Barry Silver (30 shares).
- Initial Funding: $200,000 from shareholders.
- Property Purchase: In 2010, shareholders bought the shop property personally, leased to Blackstone Pty Ltd for $100,000/year.
- Expansion: Opened a suburban outlet in 2012; issued redeemable preference shares to Gold and Silver Discretionary Trusts.
- Investment: Acquired 25% interest in Commodities Pty Ltd in 2011.
- What are the CGT consequences of selling Blackstone Pty Ltd’s business assets?
- Are there any CGT concessions available to Blackstone Pty Ltd and its shareholders?
- What are the CGT implications for shareholders upon distribution of capital gains from business assets?
- What are the CGT consequences for individual shareholders (Ted, Mary, Barry) related to the sale of the City Shop property?
- Should the advisor have recognized potential conflicts of interest and managed them per TASA requirements?
- Sale of Blackstone Pty Ltd Shares:
- Division 115: Apply the 50% CGT discount for Barry assuming the gain is not disregarded under Division 152.
- Division 152: Barry must meet conditions including the MNAV test and active asset requirements. The earn-out arrangement needs to comply with Subdivision 118-I rules.
- Taxation Implications of the Bonus Arrangement:
- The bonus arrangement is treated as property under Subdivision 118-I and excluded from initial capital proceeds but included in capital gains calculation when received.
- Contractual Requirement for Ted:
- Ted’s post-sale employment does not affect Blackstone Pty Ltd’s ability to apply Division 152-B for concessions related to retirement.
- Taxation of Restrictive Covenant:
- General: A restrictive covenant triggers CGT Event D1 creating a capital gain. If paid to Barry, he is assessed on the gain; if to Blackstone Pty Ltd, the company is assessed. The covenant might be ancillary to goodwill if not separately valued.
1. Blackstone Pty Ltd
| Tax Issues | Implications | Suggested Solutions | Referred Tax Regulations |
|---|---|---|---|
| Sale of Business Assets | Capital gain from business assets; CGT impact | Apply Division 152-B concessions for goodwill | CGT provisions Division 152 |
| CGT Concessions | Availability of CGT concessions for the company | Apply Division 152-B for goodwill; check MNAV test for eligibility | Division 152 |
| Disposal of City Shop Property | Capital gain from sale; distribution of gain among shareholders | Apply CGT discount for holding period; assess Division 152 concessions | CGT provisions Division 152 |
| Bonus Arrangement | Bonus considered property; affects capital gains calculation | Include bonus in capital gains calculation when received | Subdivision 118-I |
| Taxation of Restrictive Covenant | Payment for restrictive covenant; treatment depends on valuation | Assess treatment as part of goodwill or separate asset; check valuation | CGT Event D1 |
2. Ted Gold
| Tax Issues | Implications | Suggested Solutions | Referred Tax Regulations |
|---|---|---|---|
| Disposal of City Shop Property | Capital gain from sale; apportioned gain from City Shop sale | Apply CGT discount for holding period; check Division 152 concessions | CGT provisions Division 152 |
| Contractual Requirement (Post-Sale) | Requirement to work for 9 months post-sale | Ted’s post-sale employment does not affect Division 152-B eligibility | Division 152-B |
3. Mary Gold
| Tax Issues | Implications | Suggested Solutions | Referred Tax Regulations |
|---|---|---|---|
| Disposal of City Shop Property | Capital gain from sale; apportioned gain from City Shop sale | Apply CGT discount for holding period; check Division 152 concessions | CGT provisions Division 152 |
4. Barry Silver
| Tax Issues | Implications | Suggested Solutions | Referred Tax Regulations |
|---|---|---|---|
| Sale of Shares | Capital gain or loss on shares; potential concessional treatment | Apply Division 115 discount; ensure compliance with Division 152 | Division 115, Division 152 |
| Bonus Arrangement | Bonus considered property; affects capital gains calculation | Include bonus in capital gains calculation when received | Subdivision 118-I |
| Taxation of Restrictive Covenant | Capital gain from covenant payment | Assess capital gain; check whether payment is to Barry or Blackstone | CGT Event D1 |
5. Blackstone Pty Ltd and Shareholders (Ted, Mary, Barry)
| Tax Issues | Implications | Suggested Solutions | Referred Tax Regulations |
|---|---|---|---|
| Conflict of Interest | Potential for biased advice and fairness issues | Ensure advisor follows TASA requirements for managing conflicts of interest | TASA requirements |
1. Blackstone Pty Ltd
Sale of Business Assets
- Calculate Capital Gains:
- Determine the capital gain from the sale of business assets.
- Include the gain from trading stock, plant & fixtures, and goodwill separately.
- Apply CGT Concessions:
- Apply Division 152-B for the capital gain on goodwill if eligible.
- Ensure Blackstone satisfies the MNAV test and the asset was active.
- Document the Sale:
- Maintain detailed records of the sale agreement and asset valuations.
CGT Concessions
- Review Eligibility:
- Verify that Blackstone meets the conditions for Division 152-B concessions.
- Confirm compliance with the MNAV test.
- Apply Concessions:
- Apply the Division 152-B concession to disregard the capital gain on goodwill.