Income tax Dates
You must consider the purchase price allocation rules when a business asset purchase includes 2 or more asset classes with different tax treatments. This is because for tax purposes you must choose how much of the purchased amount belongs to each asset class.
The rules ensure that buyers and sellers use a consistent allocation of the purchase price for income tax purposes and provide a process for determining an allocation if they cannot agree.
Asset classes
The asset classes are:
- trading stock
- timber
- depreciable property
- depreciable buildings
- financial arrangements
- non-taxable or non-deductible property such as land or goodwill.
How allocation works
The buyer and seller can agree how the total purchase price is allocated between the asset classes. While buyer and seller will often agree values for individual assets, the allocation rules apply to these asset classes and do not require allocation to assets within each class. Both buyer and seller must use the agreed allocation for income tax purposes.
For larger transactions, additional notification rules apply if the buyer and seller do not agree an allocation. Under these rules, the seller may determine and notify the buyer and us of an allocation. If the seller does not do this within the required timeframe, the buyer may determine and notify the seller and us of an allocation. If neither party notifies the other party and us of an allocation, we may determine one.
Any allocation must reflect the relative market value of the assets being sold.
Tax technical information
For more information about the purchase price allocation rules, see Tax Technical.