Selling or closing your business - things to consider

The Tax Office offers business owners an overview of tax related issues that may need to be addressed prior to the sale or closing of a business.

It is emphasised by the Tax Office that the guide is not exhaustive, but seeks to be a starting point for recurring topics pertinent to the sale or closing of a business, including:

• Goods and services tax (GST);
• Capital gains tax (CGT);
• Superannuation;
• Winding up a company;
• Record keeping and lodgment obligations; and
• Cancelling registrations.

The guide notes that GST implications may arise following the disposal of capital assets and business owners should familiarise themselves with the treatment of such transactions.

The Tax Office highlights the availability of various CGT concessions to small business owners and the appropriate application of the concessions may minimise CGT liabilities when selling a business.

Business owners may still be required to complete an activity statement for the tax period in which their registration is cancelled. PAYG instalment obligations may still exist until the date of business cessation and instalment activity statements may be received even after cancellation of the Australian business number (ABN).

Lastly, the Tax Office has developed a structured checklist to assist business owners in meeting their requisite tax obligations when selling or closing their business.

Click here to access the guide.

Common payroll tax errors

The Department of Finance commented that its Compliance Division undertakes audits and investigations to ensure that employers liable for pay-roll tax adhere to legal requirements prescribed by the Pay-roll Tax legislation.

 Such examination serves to recognise common pay-roll tax errors made by employers, including:

• Failing to register when total liable wages exceed the Western Australia threshold of $750,000 per annum;
   
• Failing to declare fringe benefits and benefits under employee share schemes;
   
• Failing to include all liable wages such as director's fees and superannuation;
   
• Incorrect claiming of an exemption for certain wages;
   
• Incorrect classification of employees as contractors; and
   
• Late lodgment of monthly or annual returns
   

Penalties will result if a taxpayer:

• Fails to register as and when required;
• Fails to lodge returns and payments on time;
• Underpays tax due;
• Understates wages in returns; or
• Provides false or misleading information.

Lastly, the Department of Finance states that taxpayers who voluntarily declare a liability may obtain substantially lower penalties in comparison to those who do not.

Taxable Payments Report - Order Manual Copies of Forms on 1300 720 092

General Information on how the system works:

·      Within your software flag the suppliers to be reported on (it doesn’t include goods only invoices)

·      Invoices for labour or mixed labour/goods are to be included

·      The Law DOES NOT require a dissection between what is on the suppliers invoice

·      It is NOT a requirement to notify the suppliers of what you are informing the tax office

·      Print report of suppliers & YTD Paid Value for Taxable Payments Report for you to review

·      Only PAID invoices to be included in Taxable Payments Report at 30/6/2013 (it seems all software is aware of this requirement)

·      Create file of Taxable Payments Report in required format

·      Business may lodge on Business Portal or Tax Agent can lodge through Portal or SBR enabled software

·      If you want to lodge a paper form, you must complete and send the Taxable Payments Annual Report to the ATO

·      If you have more than 9 contractors you will need to order additional manual form

How to transfer a business name

You are required to notify ASIC in situations involving the change of a business name, including: 

• Change in the entity's structure that holds the business name;
• Sale of a business to another entity; or
• Handing over the business to a relative.

An application must be lodged to cancel the previous business name before transferring the business to the new entity. Upon receipt of the application, ASIC will issue a consent to transfer number.

 

The current business holder will need to provide the proposed business holder the consent to transfer number to proceed with the transfer of the business name. The proposed holder will also be required to provide a new ABN to ASIC.

 

 

The basic steps for current business name holders (in chronological order) include:

• Logging into ASIC Connect;
• Getting an ASIC key;
• Using your ASIC key to link your business name to your account;
• Completing a 'Cancel/Transfer business name' transaction;
• Obtaining the consent to transfer number; and
• Giving the consent to transfer number to the proposed business name holder.

 

For proposed business name holders, the steps include:

• Obtaining the consent to transfer number; and
• Registering the new business name.

If the business name was changed due to a sale transaction, the names of both the old and new business will be displayed on the national register for a period of 28 days after the transfer application is completed. Upon expiry of this period, the register will be updated to display only the details of the new business name holder.

 

To access the guide on how to transfer a business name, click here.

 

PAYG Withholding tax tables for 2013/14 income year

For the 2013/14 income year, the Government has maintained the same tax thresholds and tax rates as for the 2012/13 income year and most tax tables from the previous year can still be used.

 

However, there have been changes to a number of tax tables that affect employees with: 

• Higher Education Loan Program (HELP) debts;
• Back payments, commissions, bonuses and other similar payments;
• Employment termination payments or return to work payments; and
• Senior or pensioner tax status.

 

To assist employers in withholding the correct amount of tax, the Tax Office also provides a tax withheld calculator, which is available here.

• The tax tables on the Tax Office website include:
• Regular payments, including weekly, fortnightly, monthly and quarterly tax tables;
• Various HELP tax tables;
• Other weekly tax tables, including tax tables with no and half the Medicare levy and tax tables for seniors and pensioners;
• Tax tables for exempt employees; and
• Tax tables for superannuation payments, Medicare levy adjustments, and a wide variety of other tax tables.

 

To access the 2013/14 PAYG withholding tax tables, click here.

 

The importance of GST clauses in contracts

Goods and Services Tax (GST) is a standard 10% tax on most goods and services transactions in Australia. Despite having been implemented on July 1, 2000, some contracts continue to inappropriately address or even totally disregard GST clauses.

 

The Tax Office generally advises that contracts should include clauses that:

• Recognise whether the contract price is inclusive or exclusive of GST;
• Clarify if GST has been determined with reference to the margin scheme; and
• Limit the liability of either party if GST was later found to be incorrect.

A recent case, Duoedge Pty Ltd v Leong & Anor [2013], highlighted this risk:

• The purchaser tried to recover the GST component from the vendor after the purchaser's claim of input tax credits was disallowed by the Tax Office (residential property has no GST)
• The contract clearly stated the price was GST inclusive, although the vendor had not remitted GST to the Tax Office; and
• The court held that no implied terms and conditions could be read into the contract for the purpose of rectification and a claim to recover the GST was denied. To access an overview of the case, click here.

As a result, clauses in a contract may carry significant weight in court and parties not carefully considering the GST position of a transaction may be disadvantaged.

 

The Tax Office provides a 'Property contract and tax invoice – GST checklist' that deals with GST and property contracts which can be accessed here. The Tax Office further states that in order to claim GST, a valid tax invoice is required.

 

Building and construction industry - A letter from the Tax Office

From May 20, 2013, the Tax Office will be writing to businesses in the building and construction industry (BCI) to provide information about lodging the 'Taxable payments annual report'.

 

The letter from the Tax Office may include:

• Information on when and how to lodge the first report;
• A paper copy of the annual report form; and
• Information about the Tax Office's Youtube video on how to lodge the report online. 

The requirement for businesses in the BCI to disclose amounts paid to contractors and sub-contractors together with each contractor's Australian Business Number (ABN) was recently introduced and takes effect from July 1, 2012.

 

Businesses which have previously reported a business industry code indicating they were operating in the BCI or claimed contractor expenses at the relevant tax return label will be receiving this letter from the Tax Office.

 

The Tax Office will also be emailing a list of clients who may have an obligation to lodge the report to tax agents. Tax agents will also be made aware that the list is not comprehensive and all possible clients operating in the BCI have an obligation to lodge their report.

 

The 'Taxable payments annual report' is due by:

• July 21 each year with the exception of businesses with quarterly activity statements, which can lodge the report by July 28, 2013 in the first year; or
• August 25, 2013 if it is prepared by a tax agent. This concession lodgment arrangement is available for the 2012/13 year only 

Further assistance currently provided by the Tax Office in this area includes:

• Webinars;
• Phone assistance visits; and
• Advertising.

For more information, click here.