Question
Consider the tax treatment of the $400,000 receipt for GymFit Pty Ltd (4 marks). GymFit Pty Ltd manufacture fitness equipment for sale to gyms and
Consider the tax treatment of the $400,000 receipt for GymFit Pty Ltd (4 marks).
GymFit Pty Ltd manufacture fitness equipment for sale to gyms and sporting facilities. They have entered into many forward selling contracts with various businesses for the distribution of their equipment. One of these agreements is with Gainz Pty Ltd and represents approximately 45% of their profits (Gainz is their main contract). The contract with Gainz for the provision of equipment is for a 4- year term. In year 2 of the agreement Gainz cancels the agreement with GymFit and pays them $400,000 compensation. This cancellation of contract occurs at a terrible time as the Victorian Government ceases the operation of gyms in Victoria for an indefinite period of time. With the loss of Gainz as a client it is too hard for 3 GymFit to get the work they need at such a difficult time. As a result, GymFit has to cease operating and closes its business.
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