There are many reasons why you need to close your business. Maybe you’re ready for other goals. Perhaps you’re going to retire. You may just no longer want to run your business and have no one to pass it onto or its not making enough money to keep going.
Whatever your reason for closing your business, first of all make sure you take the time to consider if this is the best course of action for you. Your first step should be to get advice and review your financial and tax data. You may not need to close your business if you really don’t want to. You can also meet with a business advisor to help solve problems you may have.
Pro Tax Tip: The Australian Taxation Office (ATO) has a business assessment tool you can use to financially determine if this is the right step for you to take: https://www.ato.gov.au/Calculators-and-tools/Business-viability-assessment-tool/
When you’ve made your final decision, there are steps to take to make sure that, like setting a new business up, that you take steps to properly close it down when to comes to tax issues. Shutting down your business and disposing of assets regarding capital gains tax, tax consolation (BAS, GST), Single Touch Payroll (STP), and lodgement of tax returns need to be paid up and closed off.
Set A Date
Closing a business isn’t just a matter of closing your doors. There are many things to organise, but setting a date to officially close your business lets your suppliers, contractors, employees and staff, and clients organise themselves with the change of circumstances.
When shutting a business down, you may need to organise meetings with your business partners, banks managers, guarantors and suppliers. To let your customers know, you can post a notice on your physical location, post a notice on your website, personally advise customers, use your social media and send out an email. It may be worth arranging ongoing support for clients with other businesses in your industry.
If you pause your business with the aim of restarting or paused your business under an uncertain time frame, you won’t need to deregister or cancel your Australian Business Number (ABN) and Goods and Services Tax (GST) registrations. You’ll continue to receive a Business Activity Statement (BAS), but you’ll simply lodge as nil under these circumstances. You may need to confirm you’re still using your ABN. Cancelling your ABN and GST is only required if you permanently close your business down.
When you permanently shut down your business, you no longer trade. All business activities stop. Assets are disposed or converted to another use or purpose (sale, scrapped, abandoned or otherwise disposed of) and all tax obligations are met.
If you permanently close your business you’ll need to prepare your final accounts, BAS and income tax returns. STP data and lodgement of a final payment summary annual report need to be completed.
Pro Tax Tip: Complete your lodgement and payment obligations before you cancel your ABN or GST registrations.
Cancel Your Business Name
Log into the ASIC website to cancel your business name.
Select the business name you’re cancelling from the prompts and select ‘Cancel/Transfer business name from the tab to start the process. Check that the information is correct before you go any further, confirm that your declarations are correct and your details will be submitted to the ASIC.
You’ll be able to cancel your ABN using your MyGov or Relationship Authorisation Manager (RAM) which will be affected immediately. You need to cancel your ABN within 28 days of stopping your business activities.
Cancelling an ABN will cancel your registrations for the goods and services tax (GST), luxury car tax (LCT), wine equalisation tax (WET) and fuel tax credits (FTC).
You’ll need to apply to cancel your GST registration within 21 days of stopping your business activities.
Cancelling your GST registration may affect some, but not all, of your other registrations, including:
- fuel tax credits
- luxury car tax
- wine equalisation tax.
Capital Gains on Assets
Capital assets are regarded as any assets retained by a business with the purpose of generating an income through the use of that asset. Capital assets include motor vehicles, machinery, office equipment, land and buildings.
Disposing of assets when a business ends will still mean that the business earns an income and will generally be taxable. GST should be taken into account with such disposals and GST claimed, credited and paid.
Pro Tax Tip: The margin scheme is an alternative method of calculating the GST payable when you sell land or buildings as part of a business.
Fringe Benefits Tax (FBT)
If you pay fringe benefits to you staff, you’ll be aware that you need to pay FBT and that you should have registered. You can register and cancel your FBT arrangement through a registered tax agent, by phone directly with the ATO.
You can also advise your cancellation in your annual fringe benefits tax return or notice of non-lodgement.
When you hired staff or some contractors, you’ll be aware of your PAYG and super obligations. Payments you’re obligated to make include:
- payments to employees, company directors and office holders
- payments to workers under a labour-hire agreements
- payments under voluntary agreements
- payments where an Australian business number (ABN) has not been quoted in relation to a supply.
These payments were reported within the PAYG tax withheld section of your BAS and all amounts paid through STP.
There are several options to deregister your PAYG obligations:
- directly with the ATO
- Complete an application to cancel registration (NAT 2955) form on the ATO website
- Ask your registered BAS or Tax agent
You’ll still be obligated to pay the minimum amount of super for your employees or contractors into the right fund by the due dates which are based on ordinary time earnings. Failure to do so will result in a super guarantee charge (SGC).
Pro Tax Tip: Pay as much as you can into funds if you can’t pay the full amount to reduce your SGC
Single Touch Payroll
When employment ceases, you’ll need to report via STP. Make sure to report a cessation (end) date in the report. If you’ve already paid a final pay amount, update the information by submitting an update event.
If you’ve let an employee go, you don’t have to wait until the end of the financial year to report your STP data but it will still need to be finalised so that your employee can lodge their end of year tax return.
Make sure all of your overdue and final taxation forms, including outstanding tax returns, BAS, FBT and taxable payments annual reports have been finalised before you lodge your final tax return. If there are no transactions to lodge after 30 June then you may mark the form as Final Tax Return.
Make sure you keep all of your records even if your business does close. Records include financials, customer and employee.
Make sure you clean up any lose ends when you close your business. Disconnect telephone, electricity and gas. Redirect mail. Close your business accounts in your business name. Cancel your web domain and online presence, including any social media accounts. Make sure you’ve stopped any other requirements in your state or territory.
Closing a business can be a stressful event. There’s no need to go alone. ITP Tax Professionals will ease your way, guide you, provide advice and work on your behalf through liaising with the ATO.