12.1 Cutler Limited had two shareholders, Arthur and Barry, who owned the company in equal proportions....

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12.1 Cutler Limited had two shareholders, Arthur and Barry, who owned the company in equal proportions. Arthur bought all of Barry's shares and became the sole owner of the company. As part of the sale agreement, it was agreed that the taxpayer (Cutler Limited) would pay $1 million to its employees to cancel their entitlements under an incentive plan. Arthur did not want to continue with the employee incentive plan once he assumed control of the company. The employees were not required to stay with the taxpayer as a condition of receiving the payment, and the payment did not confer any new entitlements or rights on the employees. 12.1 Cutler Limited had two shareholders, Arthur and Barry, who owned the company in equal proportions. Arthur bought all of Barry's shares and became the sole owner of the company. As part of the sale agreement, it was agreed that the taxpayer (Cutler Limited) would pay $1 million to its employees to cancel their entitlements under an incentive plan. Arthur did not want to continue with the employee incentive plan once he assumed control of the company. The employees were not required to stay with the taxpayer as a condition of receiving the payment, and the payment did not confer any new entitlements or rights on the employees.

Answer rating: 100% (QA)

Answer The scenario presented raises a tax issue for Cutler Limited regarding the 1 million payment to its employees Heres a breakdown of the situatio... View the full answer