Ceasing or downturn in business 102-11010000

Where a business undertakes different levels of activity throughout a period as part of its normal operations, the previous profit result will reflect the pattern of activity. Accordingly, unless there has been a change in circumstances of the business operations, the net profit earned from the previous 12 months provides an accurate indication of the likely rate of income earned by the customer from the business.

The principle is always to determine the current rate of income earned by a customer from a business. Where, due to a change in circumstances, the previous financial statements no longer provide an accurate indication of the likely current rate of income earned by the customer from any business enterprise, a reassessment may be made on available evidence. This should generally take the form of a revised profit and loss statement which incorporates the effect of the change to the business identified by the customer and reflects the current financial position of the business. Where a customer has difficulty in providing this information, it can be suggested that they may wish to seek assistance from their accountant.

If the business is undertaken through the structure of a private trust or company, Service Officers must refer the case to a Complex Assessment Officer (CAO).

If the business has not been sold, but has ceased to operate, the income previously assessable in respect of the activity undertaken by the business is no longer relevant. However the assets of the business must continue to be maintained. For example, if some of the assets of the business have been sold, then proceeds from the sale may have been reinvested through the business structure. These investments may produce a different income and reflect asset values different to the previous financial statements provided. If the customer indicates that the previous balance sheet is no longer an accurate indication of the current net asset position of the business, a revised balance sheet of the sole trader or partnership business and a statement outlining what has happened to the assets of the business is required.

Income from a customer's interest in a business is not employment income. Business income is assessed as other ordinary income. It is used when calculating the accrual of Working Credits. The customer is unable to deplete their Working Credit balance to offset business income.

When a customer who is involved in a business (as a sole trader, partnership, or is involved in a private trust or private company) advises of a complete cessation of current business activity, the rate of other ordinary income from the operation of the business may be reassessed. It is important that the income and assets being maintained from the business are not zeroed, as more information is required to determine the reason for the change, whether the situation is temporary or permanent, and what effect the change in circumstances has had on the structure itself, as the business structure doesn't necessarily cease to exist merely because the business activity undertaken through it has stopped.