Gringo Ltd (known as Gringo) is a resident Australian company that supplies office equipment to businesses and private individuals in Sydney. Gringo has two equal shareholders â€“ Amy and her husband Ben who hold 50 issued shares each in the company. Amy and Ben acquired their shares for an issue price of $300 per share on 1 January 2008 when Gringo was incorporated.
The business of Gringo was initially carried on from leased premises. On 1 January 2012 Gringo purchased the leased premises which included an administration office, a warehouse and an adjoining car park for customers. Initially Gringo considered the purchase of only the warehouse for $800,000, but then decided to purchase the administration office, the warehouse and the car park for $2 million.
Gringo was required to borrow $950,000 on 1 January 2012 to purchase the business premises. Interest on the 12-year loan was 10% and there was an upfront establishment fee of $3,000.
In March 2012, Gringo found out that the plumbing and electrical systems in the administration office needed repairing and spent $30,000 to rectify the problems. In January 2013, Gringo paid a builder $80,000 to add two rooms to the administration office. The driveway leading to the car park had to be repaired in 2014 at a cost of $18,000 because tree roots were damaging it.
In December 2015, a violent hail storm caused damage to some parts of the warehouse roof. Gringo decided to replace the entire roof at a cost of $45,000 and added insulation and air conditioning at a cost of $30,000. The storm also damaged a large sign advertising the business and it cost Gringo $2,000 to get it working again.
Gringo purchased some equipment on 1 July 2013 that would be used solely to move goods around the warehouse. The equipment cost $44,000 (GST inclusive) and Gringo is entitled to claim an input tax credit for the GST included in the purchase price. Gringo claimed a capital allowance for the vehicle for 2013/14, 2014/15 and 2015/16, using the prime cost method and basing the calculation on an effective life of five years. On 1 July 2016, Gringo sold the equipment for $12,000 to the brother of Amy, one of the Gringo shareholders. The market value of the equipment at the time was $28,000.
Gringo decided to relocate its business to New Zealand from 30 June 2017 and, as a result, on 1 May 2017 entered into a contract to sell the business premises for $3.8 million. Legal fees associated with the sale were $12,000 and other selling costs amounted to $8,000.
1. Based on the information provided and assuming Gringo had a carry forward capital loss of $30,000 at 30 June 2016, explain and calculate the net capital gain or capital loss to be included in Gringo's assessable income for 2016/17 as a result of the sale of the business premises
Amy and Ben moved to New Zealand on 1 July 2017 when the Gringo business was relocated and their intention was to stay there indefinitely. The assets that they still owned when they moved on 1 July 2017 were their shares in Gringo, 2,000 Commonwealth Bank shares, their family home in Sydney and two cars.
The plan was that they would primarily be based in New Zealand and would each be paid a salary as employees of Gringo. Amy would, however, work for Gringo for four months each year in Sydney because of the need to maintain close links with customers and to make new business contacts.
1. Explain the capital gains tax consequences for Amy and Ben when they move to New Zealand. Include in your explanation any choices Amy and Ben can make that would change the CGT consequences of their move.
2. Explain how the salaries earned by Amy and Ben would be taxed after they move to New Zealand.
You must support your answers with legal sources (legislation, rulings or cases). If you have insufficient information and need to make assumptions, those assumptions must be reasonable and must be stated.