Winding up a business

Understand the tax when a business winds up

We will map every tax obligation that closing the business triggers, and the order they fall due.

Closing a business does not end its tax obligations. It triggers a final set of them, and several fall due after trading has stopped. Disposing of the assets can produce a capital gain. Final wages and superannuation carry withholding and guarantee obligations that directors can be personally liable for. Trading stock, the last activity statement and the cancellation of registrations each have their own timing. Getting the order wrong is how a closure that was meant to be clean leaves a director personally exposed.

Personal exposure handled first

Withholding and superannuation are checked before anything else, because that is where director liability starts.

Nothing surfacing two years later

Every obligation the closure triggers is listed with a date, so none of them is found by accident.

Concessions claimed while they still apply

Small business capital gains relief is confirmed before the assets are sold rather than after.

What tax obligations does closing a business actually create?

Winding up a business is a sequence of taxable events rather than a single one. Selling or scrapping the assets can trigger capital gains tax and, where the assets were trading stock, ordinary income. Final employee payments carry withholding and superannuation guarantee obligations. Registrations for GST, pay as you go withholding and the ABN have to be cancelled in the right order. A final activity statement and income tax return are still required.

You can. Unpaid pay as you go withholding and superannuation guarantee amounts can be recovered from directors through a director penalty notice. Where those amounts were never reported to the ATO, the usual ways of having the penalty remitted may not be available. This is the first thing to check, not the last.

Disposing of business assets is a capital gains event, and trading stock is treated as ordinary income. The gain lands in a year when the business may have little other income to absorb it. The small business concessions can reduce or remove a gain, but their conditions are assessed at the time of the disposal.

After the final activity statement has been dealt with, not before. Cancelling registrations too early makes the final lodgements harder, and can create problems with input tax credits on closing costs. There is an order to it and it is worth following.

No. Winding up the business means it stops trading. Winding up the company is a separate formal process, and where the company is solvent that is usually a members voluntary liquidation. Many closures involve both, but the tax questions are not identical.

Map the obligations before you stop trading

Tell us what the business owns, who it employs and what it owes. We will map the tax obligations the closure triggers and the order they fall due.

The obligations that outlive the business

You have decided to close, and the practical work of winding down feels like the hard part. The tax work is what follows you afterwards. Unpaid withholding and superannuation can become a personal liability through a director penalty notice. Asset disposals can produce a gain in a year when there is no longer income to absorb it.

You have decided to close and you want it done properly

The decision has been made, because the market moved, the business ran its course, or your own circumstances changed. There are assets to sell, staff to pay out, and a landlord and a bank to deal with. You want to close cleanly and not hear from the ATO in two years about something you missed. What you need is the full list of obligations and the order they fall in.

What's included in your business wind up tax advice

How a clean closure becomes a personal liability

The tax consequences of closing a business tend to arrive after the business has stopped generating the money to pay them.

Unpaid pay as you go withholding and superannuation guarantee amounts are the sharpest example. The ATO can issue a director penalty notice that makes a director personally liable. Where the amounts were never reported, that liability can be locked in before the notice even arrives. Selling the assets creates its own timing problem. A gain realised on the way out lands in a year with no trading income. The small business concessions that would have reduced it have conditions to satisfy first.

Then there are the quieter ones. Trading stock disposed of below cost, a loan account never resolved, registrations cancelled in the wrong order so a final activity statement cannot be lodged. None of these is complicated on its own. They become expensive because they are found one at a time, months apart, after the business has closed.

From a closure you hope went cleanly to one you can prove did

We start by listing every obligation the closure triggers, with a date against each. That covers the final activity statements and income tax return, employee withholding and superannuation, asset disposals, and the cancellation of each registration.

Then we deal with the exposures first. Reported and unreported withholding and superannuation are checked before anything else, because that is where personal liability comes from. Where assets are being sold, we confirm whether the small business concessions are available and what has to happen to secure them. The result is a closure with a defensible paper trail, and a director who is not waiting for a notice.

How we close a business cleanly

List every obligation, and deal with the personal exposures first.
1

List the obligations

We map every tax obligation the closure creates, from final activity statements to the cancellation of each registration.

2

Close the exposures

We check withholding and superannuation for director penalty risk, and deal with any loan accounts still outstanding.

3

Sell and lodge in order

We confirm the tax on asset disposals, secure any concession available, and sequence the final returns.

Every closing obligation mapped, with the personal risks first

Deciding to close is rarely the hardest part. What wears people down is the sense that something has been missed, and that it will surface long after the doors have shut.

One of our lawyers is a Chartered Tax Advisor with The Tax Institute and has held that credential for 25 years. We are also recognised in Doyle’s Guide for tax law. One of our lawyers also holds the ARITA Advanced Certificate in Insolvency and is a member of the Australian Restructuring Insolvency and Turnaround Association. We advise on business closures where the company is solvent and where it is not. We start with director exposure, because that is the part that does not go away.

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Close the business without leaving anything behind

Tell us what the business owns, owes and employs. We will map every tax obligation the closure triggers, deal with the director exposures first, and give you the order to work through.

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