Tax implications of liquidating a company

24-Dec-2019 21:20

If assets are sold to pay debts, the proceeds would still be subject to tax as ordinary income or as a capital gain.

Just be aware that if the business has to sell its trading stock or other assets at bargain prices (below market value), in certain instances tax law may nevertheless treat the sale as having been made at market value, regardless of how much was actually received.

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.

Generally, the claims of one priority class must be fully satisfied before those of the next priority level down get to see a cent.For companies, the terms typically used would be to “go into administration” or “liquidation”. A sole trader is less complicated to wind up because the principal of the business is also personally responsible for all debts and liabilities accrued by that business.Dealing with a company wind up To wind up a business in a company, a trustee may be appointed (either by yourself or by your creditors) to conclude all current contracts, sell remaining stock and other assets, pay outstanding debts and creditors, and notify all concerned (the bank, customers, suppliers). Voluntary administration is where a company’s directors hand over the business to a professional administrator to decide on the best plan of action.Voluntary administration can be a way for businesses in financial distress to get some wriggle room from creditors.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).

Generally, the claims of one priority class must be fully satisfied before those of the next priority level down get to see a cent.

For companies, the terms typically used would be to “go into administration” or “liquidation”. A sole trader is less complicated to wind up because the principal of the business is also personally responsible for all debts and liabilities accrued by that business.

Dealing with a company wind up To wind up a business in a company, a trustee may be appointed (either by yourself or by your creditors) to conclude all current contracts, sell remaining stock and other assets, pay outstanding debts and creditors, and notify all concerned (the bank, customers, suppliers). Voluntary administration is where a company’s directors hand over the business to a professional administrator to decide on the best plan of action.

Voluntary administration can be a way for businesses in financial distress to get some wriggle room from creditors.

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.