Transfer duties for a business purchase

22 December 2019 

When you buy a business, you need to pay transfer duties. Here’s what you need to know.

In a hurry? Jump ahead. 

Due date for transfer duties

You’ll need to pay duties to Revenue NSW within 3 months of the date of the contract; don’t confuse this with the settlement date which is usually later.

Assets included

To calculate the transfer duties, Revenue NSW counts:

  • land and property
  • interest in land, such as a lease
  • plant and equipment
  • shares and units
  • goods that are not stock-in-trade, under manufacture, or excluded from transfer duty.

Excluded assets

Generally, you will not pay transfer duty on:

  • goods that are stock-in-trade
  • manufacturing materials, or anything under manufacture
  • assets used on land for primary production
  • livestock
  • registered vehicles
  • ships or vessels.

The exception applies to assets that cannot be moved from the property.

No duties payable on these items

From 30 June 2016, you also no longer have to pay transfer duty on:

  • gaming machines
  • intellectual property used in NSW
  • licences or permissions under NSW law or Commonwealth law, if used in NSW, such as a taxi licence or water access licence
  • the goodwill of a business, if it supplies goods or services in NSW.

You must pay transfer duty on these assets if your agreement is replacing one made before 1 July 2016 for the same business property and assets.

Business structure 

Revenue NSW is not concerned whether you have setup your business as a company, partnership or even have any formal organisation. Selling paintings at a market once a week is a considered a business. 

Section 26 of the Duties Act

You won't have to pay duties on dutiable goods if their value is 10% or less than the total value of the dutiable property in that transaction. 

If the value of the dutiable goods exceeds 10% of the total, then you'll need to pay duties. 

Example - duties payable

Here's an example:

  • lease $15k
  • goods $85k
  • ​stock in trade $50k
  • goodwill $200k

The dutiable property in this example (from 1 July 2016) is the lease and the goods, i.e. a total of $100k.

In this example, the lease is 15% of the dutiable value of the property being transferred, so ad volorem duty is payable on $100k. 

I.e. $15k/(lease $15k + goods $85k) = 15%

Example - duties not payable

  • lease $1k
  • goodwill $1k
  • goods $99k

The dutiable property in this example (from 1 July 2016) includes the lease and goods i.e. a total of $100k.

As the dutiable value of the lease being transferred does not exceed 10% of the dutiable value of all the dutiable property (being $1k / $100k = 1%), you won't have to pay duties. 

Buying land and assets under separate contracts

Transfer duty is calculated as though it's one transaction when land and business goods are sold under different agreements, but as part of the same arrangement, including:

  • agreements with an inter-dependency clause
  • where the parties entered into options before making the final agreements.
  • the buyers and sellers do not need to be the same parties on each agreement for it to be the same arrangement.

Example - separate contracts

When you buy a  business, the assets not liable for transfer duty include:

  • $25,000 intellectual property
  • $25,000 stock-in-trade

Liable assets include:

  • your  factory, valued at $500,000
  • your plant and equipment, valued at $100,000, if they've been transferred with the land as part of the business.

You must pay transfer duty on the value of your property, plus the value of your plant and equipment:

  • Land + liable goods = $500,000 + $100,000 = $600,000
  • Transfer duty owed = $22,490

In addition to any duty you may owe based on the rules described above, you’ll also need to pay the $10 transfer duties on the items below. 

The $10 transfer duty

You may also need to pay a $10 transfer duty for any:

  • sale of a business agreement
  • duplicate sale of a business agreement
  • transfer of lease
  • transfer in conformity to the agreement.

Got questions or comments about duties ? Be sure to leave them below. 


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Vivian Michael
 

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to deliver the best quality business legal services to entrepreneurs launching an Australian business, wherever they are in the globe.

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