CHANGES IN BUSINESS/PROPERTY – HAVE YOU CONSIDERED TAX?

Tax issues often arise in the following circumstances and we recommend
that clients contact us before initiating any of the below so any tax
considerations can be identified before entering into an agreement.

Transfer/Sale of Shares in a Company
If a Company shareholding is changed by more than 34% the imputation credits that the Company holds will be lost.

This means that if a dividend is declared at a later date, tax on the entire dividend will be payable at 33% (instead of 5% if a dividend was completed prior to the share change).
Also be aware that if shareholding has changed by 10% one year and then 30% 2 years later, the total change would be 40% which would impact imputation credits.

Additionally if the shareholding changes by more than 50% it is possible that losses incurred by the company will no longer be able to be carried forward and will be lost.

Sale of Business
A business sale will normally include plant & equipment, stock & goodwill.
Allocation of Sale Items - IRD now requires that the categories of items are allocated a price in a sale and purchase agreement.

If this is not done the vendor then has 3 months to advise IRD of the allocations, which will then determine the allocation for both parties. After the 3 months the purchaser can advise IRD of the allocation.

Depreciation - often for a business there will be depreciation recovered where the agreed value of assets sold (plant and equipment) is higher than book value (if they have previously been depreciated). Tax will be payable on any depreciated recovered and it is recommended to plan ahead for this cost.

GST/Zero Rating – to be zero-rated for GST purposes both parties to the agreement need to be registered for GST on settlement.

Sale of Investment Property – Commercial
GST – both parties (seller and purchaser) need to be registered for GST in order for the transaction to be zero rated for GST.

Allocation of land & buildings – as noted above regarding business sales, IRD also require that commercial property transactions are allocated separate values for land and buildings. If values are not allocated the same rules regarding notification to the IRD by seller/purchaser apply.

Depreciation – where depreciation has previously been claimed as an expense against a building, if the building sells for more than book value, any gain up to the original cost of the building will be taxable (depreciation recovered). While taxpayers have been unable to claim depreciation on residential buildings for the past 10 years, historic depreciation claims still need to be account