Buying or selling a business can be complicated and understanding the tax consequences is crucial to maximising value and avoiding costly surprises.

The way the transaction is structured can significantly impact both buyer and seller.

Here are brief notes of some of the items to consider.

Asset Sale vs. Share Sale

Most transactions are structured as asset sales rather than share sales.

An asset sale allows the buyer to “pick and choose” assets, such as stock, plant, and goodwill, and to avoid taking on unwanted liabilities.

The seller, however, may face income tax on depreciation recovery (for fixed assets) and on trading stock.

A share sale involves a transfer of shares basically buying a business as is where is inheriting historic liabilities.

Care must be taken with shareholder current accounts as they are a debt owing by the company.

A change of shares may also extinguish losses or tax credits, and requires special planning.

Goodwill and Intangibles

Amounts allocated to goodwill are non-deductible for buyers. However, other intangibles, such as software or patents, may qualify for depreciation deductions.

Ensuring the sale and purchase agreement clearly allocates values to different asset classes is essential to avoid disputes and optimise tax outcomes.

If there is no agreement the values can be allocated by one party to the disadvantage of the other party.

GST Considerations

If both parties are GST-registered, the sale of a business can qualify as a “going concern” and be zero-rated for GST.

To achieve this, specific conditions must be met, including that the business is capable of operating on its own.

Otherwise, GST may apply, affecting cash flow and purchase price.

Timing and Structuring

Careful planning around timing — such as deferring settlement into a new income year — may help smooth taxable income.

Vendor financing or earn-out arrangements also require careful tax analysis.

In summary: In New Zealand, business sales can be structured to achieve tax efficiency, but the detail matters.

Engaging tax advisers early ensures risks are managed and opportunities maximised.

At David Hooper Chartered Accountants, we help local businesses make smart financial decisions. Get in touch today at [email protected] or call 09 421 1635.