When you consider buying a business, there are many important issues to bear in mind. The entity could be bought through acquiring the assets of the business or part of the ownership interests (i.e. units) in the business. Undertaking a due diligence audit will assist you to examine the business’s financial performance, tax and legal compliance of the business. Also, it would be beneficial to decide whether to buy the business assets or the units if the vendor is willing to sell either way.
When you buy the business assets you can apportion the purchase price between different classes of assets. This allows you to claim a deduction for revenue assets (eg, trading stock). In case of acquiring the units of the entity the total purchase price is included in the cost base for the units acquired and is used to calculate any capital gain or loss when the asset is later disposed of.
In certain circumstances buying the units will allow you to utilise any losses or franking credits. On the other hand, you may be liable for any tax debts of the acquiring entity. Stamp duty is another area to consider. Generally, stamp duty rates are higher when you purchase the business assets compared to buying the units in the entity.
The Goods and Services Tax (GST) will apply to the acquisition of the business assets if you are registered for GST (or required to be registered), unless the sale of a business is a going concern. Whereas, the sale of units is treated as an input taxed supply, meaning you will not be able to claim input tax credits on expenses occurred (eg. due diligence audit fees).
Our dedicated team at The Quinn Group can assist you with all your auditing needs as well as well as assisting you in determining what the options are when considering the purchase of a business.
Call us today on 02 9223 9166 or submit an enquiry here.