Tax implications of liquidating a company who is rupert alexander grint dating
Insolvent trading is where a business continues to incur debts even though the owner or directors are aware, or should be, that the business cannot pay them.
A business’s principals in these cases can be held personally liable, and even face jail time in the most extreme cases.
On a related note, if you (or your company) cancel contracts in the course of winding up, there may be capital gains or losses as a result – intangibles such as contractual rights come within the CGT regime.
Getting any money out of the company If you are a shareholder of a company being liquidated, any distribution you receive from the liquidator should be tax-free to the extent that it is a return of your original investment amount; anything above that amount is most likely to be taxed as a dividend. Don’t forget to cancel your ABN For any business with an ABN, the ATO also says you need to notify it that you have ceased trading within 28 days of doing so, and also to cancel registration for GST, if applicable, within 21 days of cessation of trading.
Beware of the tax implications Some general tax implications to consider when winding up your business include the following.
Asset sale Of course, as with every other stage of the business life cycle, you will have to factor in the tax consequences of dealing with the business’s financial woes.
Usually however, another outcome of this is to be able to sell the business as a going concern, as well as perhaps to finish and sell work in progress.
The aim is to wind up the company, but to do it in a commercially practical way.
Going into administration could stave off having to go into liquidation if the business is administered in such a way to maximise the chances of it continuing in business (or if that’s impossible, then to at least get a better result for creditors and shareholders upon the inevitable liquidation).
If you are a sole trader winding up your business or if you own shares in a company being wound up, and you sell the assets of the business or the shares in the company to a “white knight”, you will still be subject to tax on the sale.
Where the sale is taxed under the CGT rules (for example, real property or goodwill), you could be entitled to various tax exemptions and concessions under the small business CGT concession rules.
If your company can’t pay its debts and is insolvent, voluntary administration and liquidation are two of the key options.
The definition of insolvent is when liabilities total more than the value of assets, and debts cannot be paid.
The appointed liquidator will prioritise creditors, with secured creditors first (those whose claims against the company are protected by a charge over a specific asset or group of assets – like a bank that issues a mortgage), then unsecured creditors (with contractual rights to receive a set amount of money but not backed by a charge over a specific asset) and lastly shareholders.