Take care with tax when winding up your business


If you’re considering selling your business and you run it through a company, you could have a tax problem.

You may not take out, straight away, large amounts of your capital gain on sale of the business. If you do, you might find you get an unwanted tax bill.

Generally, when a company makes a capital profit, the shareholders may only distribute this money to themselves if it is in the process of winding up the company. If they pay out before the company is officially in liquidation, they need to pay tax on the capital gain.

If there’s no evidence to the contrary, the money taken out could be interpreted as a loan from the company to the shareholders, in which case Fringe Benefit Tax would apply, or you would have to pay interest to the company on the amount of its loan to you.

From your point of view, the interest is not tax deductible and it is subject to tax in the company – a waste of money.

Your solution is to wind the company up promptly. Please consult us to make sure this is done properly and enable us to check for tax pitfalls.

Published winter 2019.

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