Often the last thing on a Buyers mind when completing a new acquisition is the need to pay stamp duty. But pre-transaction, when buying assets such as a new client portfolio or book/list, stamp duty is assessed based on the location of the assets purchased and the purchase price paid.
Generally speaking, there is no longer a requirement to pay stamp duty on the purchase of shares in Australia in any State or Territory (noting specific exceptions such as for land rich entities). Buyers are still required to pay stamp duty on purchases of “dutiable” property including goodwill and assets in the Northern Territory, Queensland and Western Australia.
When is stamp duty triggered?
Buyers may not realise that often stamp duty needs to be paid outside the state in which they and the Seller operate their business.
There appears to be a misconception that if the Buyer’s business is principally located in New South Wales or Victoria (whether that is where the head office is or where the majority of the assets or goodwill is located), then there is no need to pay any stamp duty. However, this is not how it works.
Stamp duty is paid depending on the location of the assets. For client portfolio purchases, this is the location of the individual clients. Therefore, despite purchasing a client list from a Victorian Seller, duty may still be payable in the Northern Territory, Queensland and Western Australia, if individual clients within the client book/portfolio purchased are located in any of these jurisdictions.
Along with other transaction costs, such as GST and legal fees, Buyers should factor anticipated stamp duty into the transaction costs before agreeing binding terms.
What to do about clients with unknown locations?
If you have acquired an ‘orphaned’ client book with unknown locations/client addresses, be prepared to pay stamp duty at higher rates.
With ‘orphaned’ client books, it may not be possible to confirm client locations before completion. Whilst there are usually mechanisms built into the sale agreement to protect the Buyer from paying for clients that don’t move across (such as clawbacks and price adjustments) the bottom line is that these mechanisms cannot help the Buyer when it comes to stamp duty lodgement. All three Revenue Offices take a hard-line view: if there are unknown clients in the portfolio, this will likely mean that stamp duty for those clients will need to be paid 3 times (once in each state).
Whilst there is the possibility to seek a refund for any overpaid duty at a later date, this is obviously not ideal. It can be a long, expensive and drawn out process (amongst other considerations).
Taking steps to avoid this by making reasonable investigations to ascertain the client location during due diligence will avoid this.
When do I lodge, if I am paying by instalment?
The requirement to lodge is triggered on execution of the agreement and the lodgement timeframes are strictly enforced. This is despite the fact that often in client portfolio purchases, the final purchase price won’t be known until the final instalment is made.
If a stamp duty assessment is lodged outside the requisite time, late fees and penalties will apply. Late lodgement fees and penalties will start accruing between execution and completion and these fees will continue to accrue until the duty is paid. There is some scope to seek a more flexible approach from the Revenue Office, however, as an initial step each Revenue Office requires you to make an initial lodgement in the timeframe and request a refund at a later date.
Outline of the stamp duty lodgement timelines
|State or Territory||Minimum value in that State/Territory before duty is required||Timeframe to lodge from execution|
|Northern Territory||$0||60 days|
|Western Australia||$0||60 days|
What can you do to prepare?
Buyers should insist on receiving as much information as possible from Sellers and work quickly to identify where clients are located to minimise the duty payable. This should be done as part of the due diligence investigations. At this time, the proportion of purchase price payable per client or location can be confirmed (given the duty payable will be assessed against that number and overall purchase price).
What do you have to lodge?
All three Revenue Offices typically require past financial statements going back up to 3 years in order to make an assessment. However, given that for the most part client portfolio/book purchases are based on revenue in a 12 month period, there should be no need to supply this extra information, provided that the purchase price calculation and transaction is adequately explained in the lodgement submissions.
In order to avoid paying more than you need to, seek legal advice on the stamp duty implications before making any purchase and proceeding with any lodgements.
We can assist in handling stamp duty assessment including explaining to an assessor the rationale behind a submission.