You purchase a business, it feels like a bargain........until you realise how much stamp duty you have to pay.
How can you structure your purchase in the most effective way? You have two basic options – purchasing assets, or shares in a company.
Simple choice, but the effects can turn an appealing offer into a disappointing result!
A lot of people don’t realise when they set out to buy a business, just how much stamp duty might be payable. The amount will depend on the location of the business being acquired, where the clients are located and whether you buy the assets of the business or the shares in the company that owns the business.
Example: Bob purchases all of the assets of a financial planning business located in Queensland (which does not own land) and which has clients throughout Australia. Bob is required to pay stamp duty on the value of the business generated by the clients located in Queensland, New South Wales and Western Australia. If Bob instead bought shares in the company that operates the business, he wouldn’t have paid a cent for stamp duty.
Stamp duty is complex. The amounts payable and the timeframes for payment differ in each state.
Example: The table below shows when duty is payable in each state when you’re buying an unlisted financial services or credit business that doesn’t own any freehold property.
*Abolished for transfers made on and after 1 July 2016.
+It's still important to remember that even if you're buying a business located in a state where stamp duty is not payable (e.g. Victoria), you may still need to pay duty on the dutiable value of the business generated in some other states/territories (e.g. QLD, NT and WA).
It's wise to obtain legal advice before making your acquisition!
If you have any concerns about any of these issues, please contact us.
Author: Jeremy Brown
Please note: This blog was first published in January 2013 and has been updated to reflect changes to stamp duty laws – it is now current to July 2016.