Rob sold his mining consultancy business in May 2019 by selling the assets used in carrying on
Question:
Rob sold his mining consultancy business in May 2019 by selling the assets used in carrying on the business, and he wants advice about his capital gains tax liability in light of the following:
• Rob started his business in 2006 as a sole trader when he purchased a commercial building property for $800,000. He has carried on the business in that building
continuously since then until he sold the business in May 2019. (No capital allowance specific deductions for the capital construction costs of the building have been allowable.)
• The business had a current annual turnover of $2,900,000 (excluding GST). This figure has remained virtually the same over the last 3 years.
• Rob sold his business for $6,500,000 (excluding GST). Of this $6,500,000, the amount of $4,000,000 relates to the building property and the remaining $2,500,000 relates to other business assets including business goodwill.
• The tax adjustable value of the business plant and equipment at the time of the business sale was $500,000, and of the $2,500,000 shown above for the other business assets $500,000 is allocated to the sale of this plant and equipment at its tax adjustable value.
• The remaining $2,000,000 of the $2,500,000 shown above is allocated to the business goodwill.
• As at May 2019, at the time the business was sold, Rob had a loan relating to the business of $1,500,000.
• Rob owns a portfolio of shares with a current market value of $240,000.
• He is a beneficiary in the Rob and Jenny Family Trust and he has received distributions from this Trust in the previous 4 years, as follows: $3,000 in 2016 (when the Trust had tax net income of $10,000) and $5,000 in 2017 (when the Trust had a tax net income of $15,000). The Trust's net asset value just prior to the sale of Rob's business was $400,000.
• Rob's wife, Jenny, owns and carries on a florist business as a sole trader, in her own name, which has total net assets of $250,000. Rob and Jenny consult each other regularly about the decisions concerning the running of both businesses.
• Rob also estimates that 10% of his home is used for his business and that the home has a current market value of $800,000. There is a loan of $200,000 relating to the home.
• Rob is nearing 60 years of age and want to retire.
Required
Provide advice to Rob on what is his net capital gain, after applying any relevant CGT concessions and discounting for which he may be eligible.
Horngrens Accounting
ISBN: 978-0133855371
10th Canadian edition Volume 1
Authors: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura, Carol A. Meissner, Jo-Ann L. Johnston, Peter R. Norwood