Advise gordon and pamela about capital gains

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Reference no: EM13177566

Gordon and his wife Pamela have finally decided to retire.

They set up a chocolate business sixteen years ago when they obtained the Australian rights to an American chocolate company. They proceeded to manufacture and wholesale the chocolates and also opened up some cafes and retailed from those premises. They used a company called "American Chocolates Pty Ltd" for all these purposes. There were only two shares in that company and one share is allocated to Gordon and one share is allocated to Pamela.

Their son Joshua has taken over the business and has been successfully expanding the business for the past ten years. Gordon and Pamela mortgaged their home to finance the expansion but their son repaid the loan in full. The business operates all over Australia and is well known.

Gordon's son has never paid anything for the business. However their son has now offered to pay his parents $6million. In return they have agreed to transfer all their interest in the business and company to Joshua. Their son wants to claim a tax deduction for that payment but Gordon and Pamela have asked you how they should treat this payment.

Advise Gordon and Pamela about capital gains and income tax consequences and any effect that their son's tax treatment of the payment will have on them. You should discuss possible discounts and exemptions that may be available to them.

Reference no: EM13177566

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