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Selling a business through a sale of its shares is often less complicated than selling business assets – a share price is agreed on for the business and payment is made with no need to consider asset tax valuations.

Share sales are personal property and usually non-taxable, except if the seller:

  • originally bought the shares for resale instead of long-term investment
  • deals in shares.

In these 2 situations, any profit from the share sale will be taxable – the seller will need to include it as income in their tax return.

This page covers tax-related issues or topics that can come up when selling shares in a business. We recommend you speak to a professional tax advisor about your specific situation.

These are when part of the purchase price is paid over time, depending on how the business performs.

Whether earn-out payments are taxable depends on the terms of agreement , so it’s worth getting professional tax advice.

In general, if the earn-out payments specifically relate to sales and services provided and the performance of the business, then they’re taxable. (Included as income or an expense in your tax return.)

If the payments only relate to the share sale price, then they’re usually not taxable.

Any part of an asset sale that relates to paying employees or independent contractors is taxable.

For example, a payment for an employee or contractor to leave a job or take another one.

So the employee or contractor must declare this income in their return and pay tax on it, while the payer can claim this cost as an expense in their return.

Interest and other financing costs related to the sale and purchase of a business can usually be claimed as an expense.

The sale of shares is usually GST exempt, meaning it's not subject to GST and is not included in a GST return. However, if the sale relates to supplies other than shares, it may not be exempt.

Exempt supplies

Charging GST

Currently, if a company has more than a 33% change in shareholder ownership (for example, due to the sale of shares to unrelated parties) it cannot carry forward imputation credits.

Imputation for companies

This includes consulting fees, brokerage and other related costs. As most business share sales are capital (non-taxable) then the related costs usually cannot be claimed as an expense.

However, you can claim up to $10,000 of legal expenses in a tax year if they relate to producing taxable income. Beyond the $10,000 threshold, the expenses are only taxable or deductible to the extent they relate to taxable assets.

Whether these are taxable depends on what the warranty or indemnity is in relation to.

For example, if a warranty is in relation to a taxable asset, then the warranty payment is likely to be taxable (or able to be claimed as an expense by the buyer).

You may want to speak to a professional tax advisor about your situation.

An example of a restrictive covenant is when the buyer pays the seller not to open a similar business in the same area.

These payments are generally taxable to the payee, while the payer can claim this cost as an expense in their return.

Currently, if a company has more than a 49% change in shareholder ownership (for example, due to the sale of shares to unrelated parties) it cannot keep and carry forward any tax losses the company made before it sold the business shares.

Carrying company losses forward