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• 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: $200000 from shareholders.
• Property Purchase: In 2010 shareholders bought the shop property personally leased to Blackstone Pty Ltd for $100000/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.

Recent Developments:

• Ted Gold: Considering retirement due to health issues.
• Sale Agreement: Business and City Store property sold to a franchise group; contract signed on 1 June 2024 settlement on 30 June 2024.
• Sale Prices:
  • Business Assets: $1600000.
  • City Store Property: $800000.
• Gross Sales FY Ending 30 June 2024:
  • City Store: $3000000
  • Suburban Store: $1000000
• Balance Sheet Values (1 June 2024):
  • Blackstone Pty Ltd: Market Value of Assets: $2350000; Net Assets: $1850000
  • Ted & Mary Gold: Combined market value of shares: $1295000
  • Barry Silver: Market value of shares: $471750

Trusts and Individual Balances:

• Gold Discretionary Trust: RPS valued at $70.
• Silver Discretionary Trust: Net assets of $200010.
• Commodities Pty Ltd: Net assets of $600000.

Required Advice

1. CGT Consequences of Sale:

   • For Blackstone Pty Ltd: Determine CGT implications for selling business assets; assess CGT concessions.
   • For Shareholders: Evaluate CGT impact of distributing capital gain.

2. CGT Concessions:

   • Identify available CGT concessions for both Blackstone Pty Ltd and individual shareholders.

3. Disposal of City Shop Property:

   • Assess CGT implications for the sale of City Shop property by Ted Mary and Barry; check eligibility for CGT concessions.

4. Conflict of Interest:

   • Evaluate whether the advisor identified and managed potential conflicts of interest especially Barry’s concerns about biased advice.

Key Questions

1. What are the CGT consequences of selling Blackstone Pty Ltd’s business assets?
2. Are there any CGT concessions available to Blackstone Pty Ltd and its shareholders?
3. What are the CGT implications for shareholders upon distribution of capital gains from business assets?
4. What are the CGT consequences for individual shareholders (Ted Mary Barry) related to the sale of the City Shop property?
5. Should the advisor have recognized potential conflicts of interest and managed them per TASA requirements?

Suggested Solutions

1. 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.

2. 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.

3. 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.

4. 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.

5. 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

2. Calculate Capital Gains:

   • Determine the capital gain from the sale of business assets.
   • Include the gain from trading stock plant & fixtures and goodwill separately.

3. 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.

4. Document the Sale:

   • Maintain detailed records of the sale agreement and asset valuations. CGT Concessions

5. Review Eligibility:

   • Verify that Blackstone meets the conditions for Division 152-B concessions.
   • Confirm compliance with the MNAV test.

6. Apply Concessions:

   • Apply the Division 152-B concession to disregard the capital gain on goodwill. Disposal of City Shop Property

7. Calculate Capital Gain:

   • Determine the capital gain from the sale of the City Shop property.
   • Calculate the CGT discount applicable due to the holding period.

8. Allocate Gains:

   • Apportion the capital gain among shareholders based on their shareholding.

9. Apply CGT Discount:

   • Apply the 50% CGT discount for the holding period exceeding 12 months.

10. Check Division 152 Concessions:

    • Verify if Division 152 concessions apply to the property disposal. Bonus Arrangement

11. Calculate Bonus:

    • Estimate the bonus amount based on the formula provided.
    • Ensure calculations consider the expected 2025 sales.

12. Include in Capital Gains:

    • Include the bonus amount in the capital gains calculation when received. Taxation of Restrictive Covenant

13. Assess Payment Treatment:

    • Determine whether the restrictive covenant payment should be treated as part of goodwill or a separate asset.
    • Check if the covenant affects the overall tax position.

14. Document the Covenant:

    • Maintain clear documentation of the covenant agreement and its valuation.

15. Ted Gold Disposal of City Shop Property

16. Calculate Capital Gain:

    • Determine Ted’s share of the capital gain from the City Shop property sale.

17. Apply CGT Discount:

    • Apply the 50% CGT discount for the holding period exceeding 12 months.

18. Check Division 152 Concessions:

    • Verify if Division 152 concessions apply based on the active asset test and MNAV test. Contractual Requirement (Post-Sale)

19. Review Employment Terms:

    • Confirm the contractual obligation for post-sale employment.
    • Ensure that the terms of the contract are met and documented.

20. Verify Impact on CGT Concessions:

    • Confirm that the employment requirement does not affect Division 152-B eligibility.

21. Mary Gold Disposal of City Shop Property

22. Calculate Capital Gain:

    • Determine Mary’s share of the capital gain from the City Shop property sale.

23. Apply CGT Discount:

    • Apply the 50% CGT discount for the holding period exceeding 12 months.

24. Check Division 152 Concessions:

    • Verify if Division 152 concessions apply based on the active asset test and MNAV test.

25. Barry Silver Sale of Shares

26. Calculate Capital Gain:

    • Determine the capital gain or loss from the sale of shares in Blackstone Pty Ltd.

27. Apply CGT Discount:

    • Apply Division 115 discount for shares held for over 12 months.
    • Ensure compliance with Division 152 conditions.

28. Review Earn-Out Arrangement:

    • Assess the impact of the earn-out arrangement on the capital proceeds and ensure correct treatment.

Bonus Arrangement

1. Include Bonus in Capital Gains:
   • Calculate and include the bonus amount in capital gains when received.
2. Document the Bonus:
   • Maintain documentation of the bonus arrangement and calculations. Taxation of Restrictive Covenant
3. Assess Payment Treatment:
   • Determine if the covenant payment is a separate capital gain or part of goodwill.
   • Confirm who will be assessed for the covenant payment.
4. Document the Covenant:
   • Keep detailed records of the covenant agreement and payment.
5. Blackstone Pty Ltd and Shareholders (Ted Mary Barry) Conflict of Interest
6. Review Advisor's Role:
   • Ensure that the advisor has identified and managed any potential conflicts of interest.
7. Follow TASA Requirements:
   • Verify that the advisor adheres to TASA requirements for managing conflicts and providing unbiased advice.
8. Document Compliance:
   • Maintain records of the advisor’s compliance with conflict management and TASA requirements.