The end of the 2016 financial year is quickly approaching and many of us are undertaking tax planning activities.
One such tax planning activity that is commonly overlooked by many business owners is that of wrapping up dormant entities.
There are many reasons associated with winding up a dormant entity, however, two reasons to consider from a tax planning perspective are:
- The ongoing compliance costs of lodging documentation with ASIC.
- The ongoing costs of lodging income tax returns with the ATO.
- Shareholders wishing to access the company’s equity in a tax effective manner.
In the ordinary course of business a distribution from pre CGT capital profits reserve is treated as a dividend in the hands of the shareholders, however, in a liquidation scenario it is treated as a return of capital. The benefit being that there may be no tax payable in the hands of the shareholder on the liquidator’s distribution of the pre CGT capital profits reserve or the shareholder may alternatively be able to access various CGT concessions to reduce any tax payable.
Should you or any of your clients wish to explore a potential members voluntary liquidation on any dormant entities now is the time prior to the end of the financial year to contact any one of the Directors of Shaw Gidley.