Gun Manufacturer Mike decides to sell his manufacturing business, Lock, Stock and Barrel. He sells his business to a friend. The business is sold for $2.1 m. made up of:

Guns                                                            $250,000

Ammunition                                                $50,000

Plant & machinery                                  $300,000

Land                                                         $1,000,000

Building                                                         500,000

Total sale price                                    $2,100,000

Mike’s accountant recommends that Mike may be able to minimise his tax exposure on the sale of the guns, ammunition and plant & machinery by attributing a larger portion of the arms-length value to the land. The figures in the sale and purchase agreement appeared as:

          Guns                                                            $120,000

Ammunition                                                $30,000

Plant & machinery                                  $150,000

Land                                                         $1,300,000

Building                                                         500,000

          Total sale price                                    $2,100,000

Is there any tax risk inherent in the advice provided by Mike’s accountant? Explain your reasoning.