Selling the business

Members-only Log-in at right to access more information, useful links and value-added content, such as: what are earnout arrangements, and how to use them deemed dividends, and how to spot them selling-up checklist (with downloadable version link) article from The Taxpayer: 'Tax implications of transferring employee entitlements'. Don't have a membership? Join now, or view member benefits.

Registrations to cancel | Tax loose ends

When you first went into your own business, either buying an established enterprise or starting from scratch, probably the last thing on your mind was the day you would close the door for the last time.

But it's no use ignoring the inevitable, as one day you will leave your business – whether through retirement, selling up, or even due to health reasons. It's important to know what's involved, and having that succession or exit plan can go a long way to smoothing the transition.

Registrations to cancel
As part of the process, you need to cancel your registrations with the Tax Office when you sell or cease trading. If you have an ABN, you are required to notify the Australian Business Register within 28 days of ceasing business. You can click here to apply to cancel registrations for the following:

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

But before cancelling your ABN, it's best to make sure all activity statements are lodged (even if there is 'nil' to report) as well as PAYG withholding amounts. 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).

Tax loose ends
The sale of a going concern, as a continuing business, will usually be GST free. But if in the process you separately sell 'capital assets' (which are commonly not intended for sale in the ordinary course of business, but kept for the purpose of earning revenue – such as some machinery), these will need to be accounted for.

There is also the option to go into an 'earnout arrangement', whereby the as-yet-unknown future value generating potential of the business is factored into the sale, so that further payments may come to be owed to the seller depending on the performance of the business for a pre-determined period (more on these in the member-only section).

There could be deductions for costs made while winding-up the business, and capital gains will need to be kept in mind (and perhaps capital losses still to offset). Beware of doling out payments or benefits to shareholders, employees and their families, as such distributions could trigger a tax liability for them. Letting go of staff will also entail making sure all their entitlements are paid, as you will still have obligations as an employer right up until the end. And your business's final act will be lodging that last tax return.

If you decide to liquidate your company, the liquidator will probably pay the shareholders a final payout after all of the business's debts have been settled. This payout is tax-free to the extent that it is a return of the capital contributed by the shareholders, but will be taxed as a normal dividend to the extent that it is out of accumulated operating profits of the company. Read more about liquidation here.

Reviewed August 2, 2012

Back to top