Business has ceased or has been sold 043-03130090

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. However, 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 business is to be reassessed. It is important 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. The business structure doesn't necessarily cease to exist merely because the business activity has ceased.

When a business has been impacted as a result of a natural disaster, such as the Victorian Bushfires or the Queensland Floods, a reassessment of the income and assets will be required. If the business has suffered a reduction in activity as a result of the event, it must be reassessed as an unexpected downturn of a business. If the business activity has completely ceased as a result of the event, whilst the business structure may not have ceased to exist, the current income would be nil and the asset value may have to be revised.

Each business must be assessed on its merits. It is important the business income in regard to the entity continues to be maintained until investigation has proven the business has ceased or been sold. It may also be necessary to examine if there have been business cycles in past years to determine if the business income is of a seasonal nature. This is particularly important, as the previous year's business income must be maintained unless there is a change in circumstances. The fact there is no current business income may not be a true reflection of the continuing annual business income of the customer (or their partner). For example, is the closedown:

• due to a change in personal circumstances, for example, the customer is ill
• due to the new circumstances of the business, such as the loss of a major contract or major downturn in the industry
• a part of the normal seasonal cycle of activity applicable to the business
• a result of a natural disaster such as the Victorian Bushfires, the Queensland floods, etc

Such factors could have a significant influence on the Income Test and Assets Test assessment of the business.

A business has ceased when, the:

• customer and/or partner has sold the business and there are no more assets and no further income will be received, or
• business has permanently stopped trading and there are no more business assets to assess and no further income will be received

If the business has been sold or ceases 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 be reassessed. For example, if some of the business assets, or the business itself, have been sold, then proceeds from the sale may have been reinvested through the business structure, or used to pay debts. If the proceeds are invested, the investments may produce a different income and the business asset values may be different to the previous financial statements provided. If the customer indicates 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.

Information and evidence is required in order to establish exactly what has occurred. Documents can be in the form of:

• a contract of sale
• confirmation of a Company, business name or ABN cancellation
• confirmation a lease on a shop has expired
• confirmation plant and equipment have been sold
• a copy of the last contract
• a letter from the customer’s accountant stating ‘the business has ceased’ and the reason for the change
• if the customer is ill, a statement detailing if anyone else is going to continue the business during the period of illness

If the business is conducted by a private trust or private company (entity) and the business has been sold or has ceased, the case will need to be referred to a Complex Assessment Officer (CAO). The CAO will conduct a full review of the entity.

The updated balance sheet of the entity and a statement outlining what has happened to the assets of the business and whether these have been distributed to shareholders or beneficiaries or reinvested by the entity must be obtained and referred to the CAO.