The last thing on your mind when you first go into a business is the day you lock the door and walk away for the last time. But whether through selling up, retirement, or even due to health reasons, it’s inevitable that you will one day need to consider what is involved in winding up the business, and have some idea about what loose ends may need to be tidied up.

Registrations to cancel

As part of the process, you need to cancel your registrations with the ATO when you sell or cease trading. You are required to notify the Australian Business Register within 28 days of ceasing business and cancel, where applicable, registrations for the following:

• Australian business number (ABN)
• goods and services tax
• fuel tax credits
• luxury car tax
• pay-as-you-go (PAYG) withholding.

A note of caution however — it’s best to make sure all activity statements are lodged (even if there is “nil” to report) as well as PAYG withholding reports before cancelling your ABN. Your GST registration needs to be cancelled 21 days from ceasing trading, and the final activity statement will need to show any sales or purchases for that period (including the sale of the business, if applicable).

Final tax returns

A final tax return will need to be prepared for the business if operating from a structure such as a company or trust.  The return will need to cover the portion of the financial year up to when the business folds. Further, you should still keep your records. The tax law says they need to be kept for five years for all sales, purchases, and payments to employees and other businesses.

GST loose ends

The sale of a “going concern” will generally be GST-free, subject to certain conditions. One of these conditions is that “all things necessary for the continued operation of the enterprise” is made. If not all assets are sold as part of the continuing business (for example, essential plant and equipment are sold separately), there is a risk is that you may lose the going concern GST exemption.

If this particular exemption is unavailable, an asset that is “real property”, such as land and buildings will attract GST when sold. This is set at one-eleventh of the sale price. For example, if you sell land for $88,000, the GST will be $8,000. But there is a “margin scheme” for real property you might be able to use, which sets the GST at one-eleventh of the difference between the sale price and typically how much you paid for it.  Again, there are specific conditions which apply to access this scheme. GST issues involving the sale of a business are complex; see this office for more details.

CGT loose ends

Capital gains tax (CGT) will likely come into play in the course of your business sale transaction.  Don’t forget to account for any capital losses that have been previously carried forward.

There are various CGT concessions available for the “small business” owner. For example, if you are retiring and have been in business for at least 15 years, the profits from the sale of assets may be CGT-free. Alternatively, your super fund could get a helpful boost. If the proceeds of the sale of a business CGT asset are rolled over into a super fund, the capital gain is exempt from CGT. This “retirement exemption” applies to the gains made on the sales of as many business CGT assets as you like, subject to a total lifetime limit of $500,000. And if you’re at least 55 years old, you don’t even need to put the money into a super fund to qualify for the tax exemption (ask this office for more details).

For those operating from a company, beware of doling out payments or benefits to shareholders and their families, as such distributions could trigger a tax liability for them under the “Division 7A” provisions. This section of tax law means (among many other things) that if a company makes a payment to a shareholder or associate, or even “forgives a debt”, the ATO can deem it to be a “dividend” and require tax to be paid by the recipient.

(See separate article in this newsletter on Division 7A, however this can be a complicated tax area, so tailored and specific advice will be advisable.)

Helpful checklist

Tying off all the loose ends can be a lengthy, onerous process. Our office can tailor advice to your circumstances. In the meantime, there is an ATO checklist to ensure you tick all the right boxes when selling a business. Ask this office for a copy