What is a Members Voluntary Liquidation and is it an option for your rural business?
There are several reasons a rural enterprise might wind up a solvent company:
- The company has outlived its usefulness and no longer suits the owner's farming succession plan.
- An owner is choosing a simplified structure that reduces annual compliance costs.
- Transfer of capital appreciating assets to a more capital gains tax (‘CGT’) friendly environment.
- Distribution of paid up share capital and pre-CGT capital reserves free from tax. Outside the liquidation process, the distribution of these tax free reserves is likely to have large taxation implications.
- Large Division 7A issues exist within the company as a result of the tax free profits being withdrawn from the company. Often businesses/rural properties are sold and funds are taken out of company structures resulting in Division 7A issues involving minimum repayment requirements and interest charges
The choice of method to wind up a company is determined by factors including; the nature of the assets, the level of pre-CGT and post-CGT reserves, the amount of share capital, and the amont of stamp duty payable (depending on the state/territory jurisdiction).
There are two ways to wind up a solvent company
Deregistration is appropriate when a company ceases to carry on a business, has no liabilities, and has assets of less than $1,000.
It is a relatively quick, easy, and cost effective method to simplify an owner's financial structure, and once deregistered, there are no further annual compliance costs.
If a company has untaxed capital profits in a company, involving either pre-CGT profits or small business CGT concessions, then deregistration is not the most appropriate option - Members Voluntary Liquidation should be considered.
2. Members Voluntary Liquidation
Entering into a Member’s Voluntary Liquidation (MVL) is the most tax effective way to close down a company with pre-CGT profits or tax free profits. This is due to small business CGT concessions.
Distribution of either pre-CGT profits or untaxed small business CGT concessions by any other method would result in the relevant payments being treated as an ordinary dividend. Treating payments as ordinary dividends (most likely unfranked) could result in shareholders facing significant and avoidable tax liabilities.
Winding up a solvent company has many legal and taxation implications that advisers should consider and should seek expert advice.
WHY CHOOSE RSM?
We approach an MVL differently
At RSM, the liquidator will work in with your existing accountant and/or with our team of local taxation experts should the need arise.
This ensures that the liquidation aspects of the winding up are managed by a registered liquidator, and the taxation aspects of the winding up are managed by a registered tax agent.
We have access to specialist expertise
As a national practice, we can call on the resources and expertise of accountants working across the country. We have a team of National Agribusiness specialists, and specialist tax advisory professionals in Sydney, Melbourne, Perth, and Brisbane who regularly advise ASX Listed companies on complex taxation matters.
We have the resources to get the job done fast
Our national team of 13 Liquidators, 60 Insolvency staff, and over 1,500 staff spread across 32 offices nationally gives us unparalleled access to local resources.
If you would like to learn more about Members Voluntary Liquidation and your options, contact your local RSM adviser today.