Tax Consequences

The tax and non-tax consequences arising from the purchase of a business vary significantly based on whether the transaction was the purchase of business assets or purchase of shares/units.

The table below sets out 6 key considerations for a purchaser:

Consideration 

Buying Asset

Buying Shares

Liability

The purchaser is liable only in relation to assets of the business it has chosen to purchase.

The assets and liabilities of the target company will transfer to the purchaser (subject to any indemnifications). This includes the vendor’s historical tax non-compliance.

Stamp Duty

In NSW as of 1 July 2016 stamp duty is only payable in relation to any part of the sale which deals with land or an interest in land only.

Duty applies only where the target company is liable for landholders duty.

Entity losses

The purchaser will not have access to the vendor’s losses.

The vendor’s losses will be available to the purchaser subject to deductibility of the losses.

GST

GST would need to be paid unless the going-concern exemption applies.  The purchaser will also generally be entitled to input tax credits on transactional costs.

GST generally does not apply to the sale price.

Purchase price

Where the vendor is a company the purchaser may be faced with a higher purchase price due to the non-availability of the general 50% CGT discount to the vendor.

Where the vendor is a company the purchaser may be able to negotiate a lower purchase price due to the availability of the general 50% CGT discount to the vendor’s individual shareholders.

Transfer of assets

This triggers the need to obtain third party consent in regards to the transfer of certain assets such as contracts, leases, and licences.

Generally no transfer is required as the assets remain with the target company.

 It is critical for a purchaser to determine the appropriate transaction structure early in the negotiation process.

Find Out More

Quinn M&A’s specialist legal and accounting advisor’s can advise you on the best deal structure given your specific circumstances.

If you are seeking a professional advisor to assist you with the merger, acquisition, divestment or valuation of a business with an enterprise value of between $1 million and $50 million please contact Quinn M&A on 02 9223 9166 or email info@quinnma.com.au to find our nearest office.