Duty When you Aquire a Business
Acquiring a business will generally trigger a Duty liability. It is the assets that you acquire that become dutiable on an aggregated basis. However not all assets are dutiable, exemptions exists for certain types of business assets. Primary production exemptions also broaden this exemption.
The are varying ways you may acquire a business –
An acquisition of Direct Assets requires examination of all assets aquired and applying duty or exemptions to the assets.
If you purchase the company that owned the business assets. This usually has a different outcome. The biggest advantage is that duty is not payable on the assets unless other provisions of the Duties Act applies. Generally, goodwill and chattels are not caught. However, Landholder provisions need to be considered.
An acquisition of a partnership interest has its own specific legislation. However, it is generally limited to land interests and fixtures.
Therefore acquiring a partnership interest may result in a different outcome than a direct acquisition.
Commissioner of State Revenue v Rojoda Pty Ltd  HCA 7 for an understanding of Partnerships and the interest in them.
Similar to acquiring shares in a company, acquiring units that operates and owns business assets has a different duty outcome to that of a direct acquisition.
Business Assets Defined
- goodwill of a business
- a restraint of trade arrangement
- a business identity
- a business licence
- a right of a business under an uncompleted contract to supply commodities or provide services
- intellectual property of a business and
- things that a business has that are in the nature of rent rolls and client lists, but does not include a trade debt.
Each Term is defined and expanded in the Duties Act
Issues to Consider
Business assets may be located in more than one Jurisdiction( for example goodwill or intellectual property). Each Jurisdiction will require duty to be paid to them. The issue becomes one of determining where the asset lies.
This can depend on where the “head office” is or based on some other determination.
Not getting this correct could result in duty being paid in one Jurisdiction and then again in another. That is, paying more than once.
Not all chattels are dutiable and the legislation defines what is or rather what is not dutiable.
Care must also be had to ascertain the true nature of the item, whilst appearing to be a chattel, it may actually be a fixture – in which case it is treated as land.
Primary production use of chattels also extends this definition.
Whilst stockpiles of ore may be regarded as an exempt chattel. The Commissioner has issued a ruling that carefully considers if it is a chattel or not ( for the purposes of the Duties Act).
Land and chattels used in primary production have extended concessions, including transfer between family members.
This can be complex depending on the structures under which the farming property is conducted and how the asset is transferred.
The amendments to the legislation
The definition of Business asset is broad and depending on the type of asset transferred, there may be different duty considerations.
Duty is ultimately payable on the market value of the property or the consideration paid, which ever is the greater.
Valuation may be undertaken by the Commisisoner under any circumstances, not only when the parties appear related.
There are guidelines published by the Commisisoner as to the valuation of assets, but they are only the opinion of the Commissioner on how to value. It is possible other methods are more applicable.
Not always is a transaction a simple cash sale. Consideration may consist of vendor shares, milestones or other forms of undertakings.
It hen becomes an issued to ascertain firstly what is the market value of the consideration and then to which assets is it allocated.
Dut yin payable in relation to a Western Australian business. That is it must be a business in the first instance.
Not all assets are dutiable, as such a lump sum purchase price for a business will need to have the consideration that is to be paid, allocated between all the assets.
A liability to duty arises when the transaction is made (could be verbal), however an issue often overlooked is that a Terms Sheet or Heads of Agreement may be the dutiable instrument or transaction date which triggers the liablity.