Asset and share sales have different benefits and consequences for the buyer and seller, and are treated differently for tax purposes.
Selling business assets
Asset sales can be used to buy or sell any type of business, whether the whole business or part of it. You need to know how income tax applies to each kind of asset, as this affects the tax you’ll pay or the expenses you can claim in your return.
Generally, where the assets sold are used as part of the day to day running of the business, the:
- buyer can claim the purchase as an allowable expenses
- seller will also have to declare the same as income.
For example, Company A agrees to sell trading stock and receivables to Company B. Company A will usually have to pay income tax on their income from selling the receivables and trading stock, and Company B can claim the amount they’ve paid for both as an allowable expense.
Overall, asset sales can be more complicated than share sales due to the different types of asset sold and their tax treatment. It’s important that the buyer and seller agree on how the sale price is allocated between the types of assets sold, as this usually affects the tax for both sides.
Selling business shares
This applies to the sale of shares in a company that owns the business.
Generally, shares are a capital asset and any gains the seller gets on the share sale are non-taxable income (as long as the shares were held for long-term investment). The purchaser generally cannot claim the price they paid for the shares as an allowable expense.
Overall, share sales can be less complicated than asset sales – a share price is agreed to, and payment is made.
Sorting out your tax after you’ve sold a business
Even after you've sold your business, there are often a number of other tax matters to be dealt with. These can include:
- cancelling your GST or employer registration
- filing your final income tax, GST and other tax returns
- paying any remaining tax.