From the point of view of Mary and Tom, there are ambiguous issues: on one hand, their aim is to sell their business at maximal values; on the other hand, the higher value they will demand the higher capital gain tax they will have to pay. Moreover, the buyers will be less willing to make the purchase, and thus, the values of production machines, buildings and goodwill should be estimated only close to maximal level (not equal to).
In order to decrease the amount of CGT tax, Mary and Tom should try both indexation and discount methods of calculating the CGT value, and select the one that leads to minimizing CGT. Also, if this business is the subject of GST payment, Mary and Tom might claim to include this cost as part of the sale (Woellner & Barkoszy & Murphy & Evans, 2009). Since Mary and Tom are willing to sell existing business and do not want to close it, there are fewer regulations and obligations for them.
From the point of view of the buyer, there are more concerns and issues to check. First of all, the estimates of the cost of goodwill and present values of business items have to be checked. Secondly, the presence of hidden costs and taxes needs to be checked. For the buyers, it would be very useful to require some form of commercial and tax diligence, and analyze the business situation as well as financial information. Such things as inclusion of GST into the price of the business, existing FBT liability, transfer costs and stamp duties have to be researched (Barkoszy, 2008). Also, it should be checked whether the business uses equipment and vehicles that are registered at the company’s name (it has to be assured that the company is not using items that are private property of the owners). Also, buyers need to check whether there are appropriate business records at least for the period of 5 years.
It is not mentioned in the task whether Brett is hired by the TV station and is an actual employee, or whether he is an independent contractor. Since Brett’s income represents quite a significant sum, and the industry is fickle, it is possible to conclude that he does not benefit from being an employee. The first recommendation to Brett is to become an independent contractor, since his income will be charged 30% if he acts as separate business entity, and will be charged about 45% if he acts as a private individual (Australian Taxation Office Homepage, 2010). Also, the position of the secretary should be eliminated, and Brett can negotiate a certain increase in his payment at the expense of saving this amount of money.
Brett’s expenses might be decreased after critical review of his relations with joke writer. Again, here it is important whether he has hired this writer, or simply pays him as for the services of writing. Moreover, it is important how they make the payment, per hours or per work as a whole. From Brett’s point of view, it is optimal to pay for the whole work done. Business contact with the joke writer and payment also have to be done on employment basis: Brett needs to use joke writer’s services with an ABN (Barkoszy, 2008), since he doesn’t have a large degree of control over the writer’s work, and does not need hourly cooperation. Again, in case he operates as a company, these expenses will be tax deductible, and this is one more reason to work as a separate business entity.
For Brett, it would be indeed useful to create a family trust, which is a discretionary trust which allows to gain a significant tax reduction and allows to benefit the members of the family (CCH Australia Limited, 2009). Also, it gives the protection from bankruptcy, which is especially important because the industry is instable.
Concerning Brett’s family situation, i.e. family with two children, elder child and illegitimate son, the following recommendations can be done. First of all, he needs to establish a family trust where he would be the Appointor, and his wife would be the Trustee. Since the children have different level of trust, both type of beneficiaries have to be involved (Woellner & Barkoszy & Murphy & Evans, 2009). The legitimate children will be the default beneficiaries, and his illegitimate son would be the general beneficiary. Thus, when he goes out of the jail, it would be possible to share some part of income with him. It is recommended to include illegitimate son into the group of beneficiaries because otherwise any income distributed to him will be taxed at highest rate, and it is likely that Brett will be helping him anyway.