Rainbow Ltd., a private company whose shares were owned by Joshua Campbell and his family, was a very successful paint distributor. For 11 years the business supported Joshua and his family. They paid tax on their salaries but did not take any of the profit over this period. The share capital of Rainbow was 100 ordinary shares of $10 each and the total of undistributed profits at the 21st December 2002 was $12m. Mr. Campbell’s adult children decided to immigrate and the family took the decision to go into voluntary liquidation and in this way, they took their capital in the business that they had accumulated.

Required:

Discuss the tax implications of this decision, citing and using the relevant case laws, and section of the income tax act.

Answer rating: 100% (QA)

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