Question 5: Ernest Ernest is seeking advice regarding the sale of his business and the tax consequences of an employment package. Sole traders business: Ernest has run his own business for over 20 years as a self-employed dentist. He has always prepared accounts to 30 September each year and having reviewed the file you note he has transitional overlap relief of 20,000 available. His tax adjusted trading profits each year are in the region of 100,000. Ernest will make up his final set of accounts to the year ending 30 September 2020 when he will cease trading, following the sale of his whole business to another dentist, triggering a capital gain of 300,000. Employment Contract: After selling the business Ernest plans to accept a job as an employee in a local dental hospital. He has been offered a remuneration package as follows:

i) He will be paid a salary of 5,000 per month

ii) He will be provided with a fully expensed i-phone

iii) He will be eligible for an interest free loan of up to 4,000 iv) He will qualify for free private medical insurance for himself and his family Having never been employed before, Ernest is unsure of how his salary and benefits in the remuneration package will be taxed.

Requirement:

a) Explain the tax implications of ceasing to trade and explain how the capital gain upon sale of the dentistry business will be taxed. (6 marks)

b) Advise Ernest of the tax implications of the remuneration package.