Have you ever considered selling your business? If you have, or if you are currently selling your business, all I can say is don’t rush into it; get advice; see your Accountant; see your Solicitor; make sure that you do it all properly.
You may think that finding a buyer and receiving the money is all that is involved. But if you don’t do it properly you can end up owing tax and GST where normally there wouldn’t be in the case of a business sale.
This week we experienced the worst case scenario for one of our clients. It all started a few months ago when he got sick and could no longer operate his business. It happened that there was a similar business in the same premises as where he was leasing his shed from. He was talking to that business and telling them that he needed to sell up. They offered to buy the business and that was that..
He rang me and told me he needed to supply them with a P&L and then negotiate a bit and it would be all done. I advised him to see his Accountant or Solicitor as I had dealt with lots of people buying businesses but not really got involved with the selling of businesses before. He told me he didn’t need advice, it was all pretty straight forward and besides he trusted the guy who was going to buy it.
When I went to see him to do his final bit of bookkeeping, he informed me that they didn’t really end up buying the business, they just purchased all his stock and equipment. He had done them an invoice for the sale of the stock and equipment, they had paid him, he then collected all monies owed to him from customers and paid bills that he owed.
It all seemed very clean to him, everything was finalised and attended to. I then completed his bookkeeping and lodged his BAS. This is where things became unstuck… He was shocked at the fact that he had to pay GST on the ‘sale’ of his business. I explained to him, that as he said, he didn’t really sell his business, he just sold the stock and equipment, this meant that GST applied to the sale of those items.
Lets just say he is not a happy man at the moment. So I want to take the time to advise all of you who are thinking about selling your business to please get advice from your Accountant and/or Solicitor. Please make sure that you sell it the ‘correct’ way.
A Going Concern
The sale of a business can be GST free if it is sold as a Going Concern. The term Going Concern was brought in by the ATO so that people could sell their business GST free if they meet a certain criteria.
The ATO has the following for the definition as a Going Concern.
A going concern
A supply of a going concern occurs when:
- a business is sold, and that sale includes all of the things that are necessary for the business to continue operating, and
- the business is carried on, up until the day of sale.
The supply of a going concern is GST-free if it meets certain requirements including:
- the sale is for a payment or consideration
- the purchaser is registered, or required to be registered, for GST, and
- the seller and the purchaser have agreed, in writing, that the supply is of a going concern.
These requirements are outlined in more detail in section 38-325 of the GST Act and are explained in the Goods and Services Tax Ruling GSTR 2002/5External Link Goods and services tax: when is a ‘supply of a going concern’ GST-free?. This checklist includes references to paragraphs in this ruling.
This definition can be found on the ATO website.
Capital Gains Tax
The sale of your business could also be subject to Capital Gains Tax. Capital Gains Tax is a tax charged on capital gains that arise as a result of the sale or disposal of an asset.
This is an area that us bookkeepers don’t really get involved in, but you MUST talk to you Accountant about it. There are a few exemptions and concessions, so it is really important that you are informed BEFORE you sell your business, not afterwards.
To find out more about Capital Gains Tax you can go here to the ATO website.
What happens to your staff
If you are selling your business and you employ staff, your staff can either transfer to the new owners or end their employment at the time of the sale. Whatever happens to your staff, make sure you are well informed on what is required from you.
If they are transferring to the new owners then you will be required to supply the new owners with certain information. You will also have to negotiate what entitlements are being transferred over and what aren’t.
But regardless of if they are transferring or ending their employment there are still some obligations you will have to deal with.
- Employment Termination Payments (if they are eligible)
- Fringe Benefits Tax (FBT)
- Their Final Pay, which may or may not include the following:
- Annual Leave Payout
- Long Service Leave Payout
The Final Step
Once all the above has been investigated and you have sold your business and everything else is taken care of, it is time to do your final tax return.
If you are in a partnership, unless this partnership is going to be doing some other venture, it will need to have a final tax return lodged and the ATO advised that the partnership no longer exists.
If you have a company, it will also have to be deregistered with the Australian Securities and Investments Commission (ASIC) and the ATO will need to be notified on the tax return as well.
You have 28 days to notify the ATO that you are ceasing the business and to cancel the ABN. When you notify them of this all outstanding monies owed to them will need to be paid straight away.
So as you can see, selling a business is not as easy as just receiving money for it. So please take the time to research and get advice from your Accountant and Solicitor.
I would love to hear your stories of how easy/hard it was to sell your business. Leave a comment below or tell me on Facebook or Twitter..
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