Married couple, Rob and Jane White acquired a 120 hectare farm property in Central Queensland twelve years ago. Their partnership agreement shows that they agree to share their profits and losses in the ratio of Rob 60% and Jane 40% respectively.
Rob and Jane presented their financial details to you, as their tax accountant for the year ended 30 June 2017.
Receipts for the tax year:
Expenses for the year:
Rob and Jane want to sell their business in the coming financial year, ending 30 June 2018. They have been approached by a number of interested buyers. Their business broker has advised them that they have a good chance of selling the cattle business together with their farm equipment and trading stock for $5 million. It is envisaged that the profits arising from the sale of the cattle business arises mainly from the goodwill of the business and the 120 hectares of land. It is anticipated that trading stock will be disposed of at market value at the time of sale which will be higher than the cost price of the cattle. It is estimated that the farm equipment could be sold for $40 000. The cattle business obtained a bank loan five years ago which was secured over the 120 hectares of land. The outstanding amount on this business loan is estimated to be $600 000 at the time of sale.
Rob and Jane look forward to retirement as they are both over 55 years old. With the proceeds of the farm, they intend to downsize and buy two houses, one which they will use as an investment property, and the other which they will use as their primary residence. With the remainder of the money, they intend to set up a trust for their two sons – Jacob (22 years old) and Nicholas (14 years old), with Rob acting as trustee.
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