Sale of Business: What are the Tax Consequence?

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.