New rules on business asset valuation start July 1
July 7, 2021
Are you buying or selling a business? If yes, you’ll need to familiarise yourself with the new tax rules about how assets are valued when they’re sold as a bundle.
From July 1, buyers and sellers need to agree on how much of the sale price is allocated to taxable, depreciable or non-taxable assets. This affects the tax paid, and the tax benefits or profits received.
Business asset sales can be a mixture of:
taxable (revenue) assets like trading stock, accounts receivable, personal property bought for resale, or patents
depreciable (capital) assets like plant or machinery
non-taxable (capital) assets like business goodwill.
The IRD says on its website that: “Typically, a higher proportion of:
taxable and depreciable assets will benefit the buyer as they can claim expenses and depreciation.
Non-taxable assets will benefit the seller as this reduces their taxable income.”
We recommend reading the IRD article “Setting Up an Asset Sale” which describes the different scenarios if parties agree or don’t agree on the allocation, what the steps are, and what happens if the IRD believes the sale price allocation hasn’t been made correctly.
What steps to take
The best time to consider how the sale price is to be allocated is before you enter into an agreement for the sale and purchase of the business assets. This is where we come in. If you are buying or selling a business, please get in touch to see how we can help.
As always, it’s never too early to get in touch with us! That’s because the right advice now can save a lot of stress down the road. We can also help save you time by working directly with your accountant to protect you and your business.