Whether you’re looking to sell your established business, or contemplating acquiring a new one, understanding the potential tax implications is paramount.
On entering into discussions, one of the critical decisions that both parties need to consider, and ultimately agree upon, is whether it will be a sale/purchase of the company’s assets, or its shares.
In order to inform that decision, the buyer and seller should consider the unique advantages and challenges that each option presents for their individual situation. The process should involve navigating through various commercial considerations, including the significant tax implications that come with each option.
This article delves into some of the important tax considerations for both sellers and buyers, shedding light on key factors that can significantly impact financial outcomes for both sides of a business sale/purchase transactions.
Tax Considerations when Selling A Business
When making the decision to sell your business, some of the essential tax issues that you should consider include:
- Capital Gains Tax (CGT) Comparisons
When comparing a share sale versus an asset sale, understanding the nuances of capital gains tax is vital. This includes considering factors such as the 50% discount as well as any small business CGT concessions that may apply. Share sales may have additional requirements compared to asset sales.
- Eligible Assets for CGT Concessions
It’s essential to identify the type of assets that qualify for CGT concessions. Knowing which assets do and don’t attract these concessions can significantly impact your tax obligations.
- Capital Gains Tax Rollovers
Investigate the potential for utilising CGT rollovers to defer or minimise tax liabilities. Rollovers can be a valuable tool in restructuring transactions while also contributing to managing tax obligations effectively.
- Impact of Temporary Full Expensing
Although the application temporary full expensing ended on 30 June 2023, it may still be relevant and necessary to consider any impact that it might have on the decision to make a share sale or asset sale. Understanding the implications of this tax measure is essential for making informed choices.
- Non-Asset Amounts and Tax Equations
Consideration must be given to non-asset amounts that can influence tax equations for both share and asset sale alternatives. This includes factors such as company liabilities and employee provisions, which can significantly impact the final tax outcome.
- Utilising Carried Forward Losses
If your company has carried forward losses, explore the opportunities for utilising these losses effectively. Understanding how these losses can offset gains can help to optimise your tax position.
- GST Implications and Going Concern Treatment
Assess the GST implications of the sale and explore the possibility of utilising the GST-free supply of a going concern treatment. Understanding when this treatment applies can lead to significant tax savings.
- Transfer Duty (formerly known as Stamp Duty)
In NSW, stamp duty falls under the Duties Act 1997 (NSW) and is the responsibility of Revenue NSW. Since 1 July 2016, you do not have to pay stamp duty for the sale of business assets (other than real property business assets).
Navigating through these tax considerations requires careful planning and expert advice. Consulting with a qualified tax professional, such as the team of tax accountants and tax lawyers at The Quinn Group, who understands the intricacies of Australian tax laws can help you make informed decisions tailored to your specific circumstances.
Tax Considerations: Buying Assets vs. Buying Shares
When contemplating the purchase of a business in Australia, whether to acquire its assets or its shares poses significant financial and tax considerations. Below, we’ve outlined some of the key implications of each scenario.
Buying Assets of a Business
Liability: Opting for an asset purchase means the purchaser assumes liability solely concerning the assets they choose to acquire. This limits exposure to the business’s existing obligations.
Stamp Duty: As of July 1, 2016, in New South Wales, stamp duty obligations arise only concerning any parts of the sale involving land or land interests.
Entity Losses: Purchasers do not inherit access to the vendor’s losses when purchasing business assets.
GST: Unless the going-concern exemption applies, GST obligations arise when buying business assets. However, purchasers typically gain entitlement to input tax credits on transactional costs.
Purchase Price: When the vendor is a company, buyers may face a higher purchase price due to the lack of availability of the general 50% CGT discount.
Transfer of Assets: Asset purchases necessitate obtaining third-party consent for the transfer of certain assets such as contracts, leases, and licenses.
Buying Shares of a Business
Liability: Acquiring shares means inheriting both assets and liabilities of the target company, subject to any indemnifications. This includes historical tax non-compliance of the vendor.
Stamp Duty: Duty is applicable only if the target company is liable for landholders duty.
Entity Losses: Purchasers inherit the vendor’s losses, subject to the deductibility of these losses.
GST: Generally, GST doesn’t apply to the sale price in share acquisitions.
Purchase Price: Buyers may be able to negotiate a lower purchase price when the vendor is a company, thanks to the availability of the general 50% CGT discount to the vendor’s individual shareholders.
Transfer of Assets: No asset transfer is necessary as assets remain within the target company.
Understanding these tax considerations is integral for navigating the complexities of business sales and acquisitions in Australia. Each option presents unique advantages and challenges. It is important to seek professional advice from tax experts as they can assist you to identify the option that will best align with your business goals and financial objectives.
A clear understanding of the tax strategies involved when selling or buying a business in Australia is essential for maximising financial outcomes and minimising tax liabilities.
As part of The Quinn Group, the advisors at Quinn M&A work closely with our team of expert tax accountants and tax lawyers to ensure that you receive the best advice for all areas of your business transaction, including assessing any applicable tax implications.
Our professional guidance and thorough due diligence process helps to ensure a successful outcome for your individual situation.
For expert advice on all aspects of your business sale or purchase, including all the tax considerations, contact Quinn M&A by completing an online enquiry form, call 1300 QUINNS (1300 784 667) or +61 2 9223 9166 to arrange a meeting or teleconference.
