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Tax in M&A: Common stamp duty lookouts for M&A transactions

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The choice between a share sale and an asset sale involves many different considerations – including commercial, legal and tax. It is important to remember that stamp duty obligations can also be quite different depending on what type of transaction is chosen.

Here we explore some of the instances when stamp duty can impact tax obligations and add to the cost of M&A significantly.

Impact of landholder duty

While it is common knowledge that a share sale is usually preferable from a stamp duty perspective – particularly when there is valuable, intangible business assets located in QLD, NT or WA – landholder duty exposure can be a blind spot.

We have seen the landholder duty base expand over the years, and it now catches many more transactions than the former ‘land rich’ regimes. All states and territories have moved away from the land rich concept, with only a threshold ‘landholding’ value enough to make a target entity a ‘landholder’.

Particularly because the thresholds are relatively low (ranging from nil for residential and primary production land in SA to $2m), the expanded meaning of ‘land holdings’ to things that are not ‘land’ in a legal sense can easily be reached – particularly in relation to things ‘fixed to land’ or things ‘fixed to the land’ in all states and territories, other than ACT.

While there is still some debate about how far these terms go, anything which is physically ‘fixed’ to something (eg a floor, wall or ceiling) is potentially caught. If caught, some states then also bring to duty all of the goods or chattels located in that state.

Prudently, these aspects should be considered and identified early in a transaction and modelled if required.

Post-acquisition restructures

In the event the transaction is a share sale, it is typically desirable for a buyer to transfer the business from the acquired vehicle and wind it up. In most cases, in the event that duty would ordinarily apply to the restructure – subject to meeting the relevant criteria – an exemption from duty generally applies. An application for exemption must be made to the revenue office – it is not self-assessable, and there are some deadlines to obtain the exemption.

Some criteria for reconstruction exemptions are quite onerous. That said, with some care, it usually is achievable.

Working with clients

Grant Thornton can help you manage all tax aspects of an M&A transaction to ensure compliance and deliver business benefits. The team’s expertise in stamp duty is just one of the aspects of a deal we can help on.

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