If you have made the decision to close down your Business then there are a number of administrative and tax issues you need to think about. The first step is talk to your accountant, solicitor or business advisers about the legal requirements for closing your Business. Below is a summary of the relevant tax issues you need to consider, and depending on the legal structure of your Business, some or all of the issues below are likely to form part of your discussions with your advisers:
If the business has been registered for GST then the disposal of capital assets in your Business will have GST implications and you will need to account for the GST when you dispose of those assets. (If however you are selling your Business as a going concern, the sale may be GST free provided certain conditions are met).
Capital Gains Tax
If your Business acquired capital assets after 19 September 1985 then the disposal of these assets may trigger a capital gains tax liability. If you operate a small business, there may be “small business concessions” which you could take advantage of, and if eligible, you’ll be able to reduce the amount of capital gains tax paid.
For Businesses that are structured in the form of a company, all of the unpaid advances, loans and other payments or credits made to shareholders may be caught under the provisions of Division 7A of Part III of the Income Tax Assessment Act 1936. Division 7A is aimed at preventing private companies from making tax-free distributions of profits to its shareholders. Therefore if your company forgives a debt owed by one of its shareholders then the debt may be treated as a dividend under Division 7A.
Depending on whether you wish to retire completely or just reduce your working hours, there are various options available in transitioning you through to retirement.
Winding up a Company
If your business structure is a company, the winding up of the company will need to be considered. Before a company is able to wind up, it must pay off all of its debts. If there are assets left after paying off all of its debts, these could be distributed to the shareholders who would then be liable to pay the relevant tax. It is a good idea to ensure that any assets to be distributed are assessed independently and their current market value known prior to distribution. This enables any depreciation (or appreciation) to be properly recorded in the books of the company at the time of disposal/distribution and also enables the recipient Shareholder to more accurately calculate any tax liability due in respect of the distribution.
Finalising Employee Obligations
If you have employees whose employment ceases as a result of you closing your Business, you will have the following obligations as an employer:
- PAYG: make final PAYG withholding payments on behalf of each of your employees and forward a summary to each of them. Retain your employee’s TFN declaration for the current and next financial year and include details of any final payments made in your PAYG payment summary statement.
- Superannuation: calculate and pay final superannuation contributions and report the contribution to your employees.
- FBT: include reportable fringe benefits on an employee’s final payment summary.
- Employment Termination Payments: if an employee is due a lump sum payment, then determine if any part of the payment is an ‘employment termination payment’ and calculate the amount to be withheld from the ‘employment termination payment’.
Record Keeping Obligations
Record keeping for your business is a legal requirement and the ATO requires businesses to keep its records for a minimum of 5 years. The records that you should keep include any transaction that has a financial element such as:
- copies of invoices and receipts you provided for goods and services rendered;
- invoices for goods or services you purchased or bills you paid such as rent, licence fees, insurance;
- wages and other cash payments made to employees;
- financial statements;
- tax return information;
- GST – Business Activity Statements and all associated paperwork;
- FBT Annual Returns and calculations;
- PAYG Withholding Annual Payment summaries;
- Contractor Annual Payment Summaries;
- bank account statements; and
- stock take records.
Lodging Final Returns
You will need to complete an activity statement for the tax period your registration cancellation ‘date of effect’ occurs and report on the following:
- All the sales, purchases and importations made in your final tax period including the sale of your Business;
- Adjustments for assets held after cancellation; and
- Any other adjustments.
Continuing lodgement obligations include PAYG instalments up to the date of ceasing your Business and also paying any outstanding tax liabilities.
- WorkCover Registrations: If you have ceased employing workers, then you should cancel your registration as an employer with WorkCoverSA.
- Employer Super Guarantee Funds: If you cease to be an employer there are no special requirements with regard to superannuation however you should contact each Superannuation Fund that you remit payments to on behalf of your employees and advise them of the date at which the Business is closing down and how and when you intend to remit the final SGT Contributions due on behalf of your employees.
- Pay as you go (PAYG) withholding: You will need to notify the ATO if you were previously withholding PAYG and will no longer be doing so. If you cease to be an employer, you should cancel your registration for PAYG withholding. For information about ceasing to be an employer or when you are also ceasing business, refer to www.ato.gov.au/business ‘Application to cancel registration’.
- Fringe benefits tax (FBT): You will need to notify the ATO if you were previously paying FBT and will no longer be doing so. If you do not wish to remain registered for fringe benefits tax, you need to advise the ATO by completing either a final Fringe benefits tax return (NAT 1067) or a Fringe benefits tax – notice of non-lodgement (NAT 3094). If you need to pay FBT or if you have paid FBT instalments for the current year, you should lodge an FBT return. The non-lodgement advice is suitable for cases where there are no payments to be made or instalments to be refunded.
- Business Names: Business Names can be cancelled through the Australian Securities & Investments Commission’s website at www.asic.gov.au. If you wind up a company it will need to be deregistered and that can also be done through the Australian Securities and Investment Commission.
- ABN and GST: You can cancel these registrations through the Australian Business Register at www.abr.gov.au or you may complete a paper form “Application to Cancel Registration (NAT 2955)”.
The above list only deals with some of the tax and administrative issues, but there are other issues that are also important such as:
- if you’re leasing premises then ensure you know your obligations if you close the Business prior to the end of your Lease;
- advise and organise meetings with people who will be affected by your Business closing such as the Bank, Insurance providers, Financiers, Industry and licensing bodies;
- notify your key customers and suppliers and finalise any outstanding arrangements;
- if necessary negotiate an arrangement with another business or supplier for future warranty and other repair claims;
- cancel any ongoing mail delivery services or organise for short term re-directions;
- cancel any ongoing telephone and website directory services (including website hosting); and
- organise appointments for final readings (including shutoff or transfer) for water, gas, electricity, phone, internet and other services before you close.
For further information, please contact the author.
This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.