Al is a general insurance broker and owns his own practice. The practice is operated by Broking Co Pty Ltd. Al is a Director of Broking Co Pty Ltd. 100% of the shares in Broking Co Pty Ltd are owned by The Broking Trust and Aleks is the trustee of that trust. The Broking Trust is a fixed trust, and Al holds 100% of the units in the trust. The business has generally been highly profitable, but the impact of the COVID lockdowns on both his clients and the operation of his own practice means in the current financial year, Broking Co Pty Ltd is likely to have a net tax loss of $100,000. Al has an employment contract with The Broking Trust which sees him paid $70,000 a year + superannuation guarantee contributions. Al is a member of a public offer superannuation fund with a current balance of $1 million.

Al has told you that he thinks he is ready to sell his business. He has an informal offer from a colleague (Rick) who would like to purchase the business for $1 million. Rick would want Aleks to remain as an employee for 2 years on an employment package of $150,000 a year + superannuation guarantee contributions.

Al is 63 years of age and would like to go ahead with the sale and it will be entered into on the forthcoming 1 July. Rick does not mind whether he buys the shares in Broking Co Pty Ltd which would continue to operate, or if he purchased the business assets out of Broking Co Pty Ltd into a new entity.

Question :

Advise Aleks on which of the two options he should take for the sale of the business to Rick. You do not need to calculate exact tax liabilities for this recommendation, but should be able to explain the broad tax difference between the two options.

Expected answer: You must make a recommendation (be clear about what you are telling Alex to do). Compare the outcomes of the two options are recommended the one that pays less tax.

what aare the advantages and disadavntages for both options?