The Importance of Structuring in Acquisition Transactions
As a New Year commences, we often turn our minds to the year that has been.
2015 was a year when we saw some significant transactions in the hotel market, both in South East Queensland and regionally. With the southern markets’ yields compressing, there are some positive signs for 2016, as investors look for value.
One thing that has stood out when reflecting on last year is the importance of transaction structuring. We have witnessed vendor and purchaser perspectives and the variability in the quality of advice in relation to structuring transactions, in particular where the “going concern” GST exemption is sought, which is of concern.
Broadly speaking, the GST “going concern” exemption is where the vendor and purchaser agree in writing (usually a term of the contract) that the business being transferred is a “going concern”. A “going concern” is one where all things necessary for the continued operation of the business are being transferred and the business is being carried on by the vendor up until the date of supply. Both vendor and purchaser must be registered for GST.
If the supply is a “going concern”, then there is no GST payable, resulting in a saving in cash flow, financing costs and stamp duty.
However, for reasons such as asset protection, it is not uncommon to see the assets of the business, either held in different entities, or the purchaser acquiring the business in multiple entities. Most commonly it is the land and buildings which are separated from the operating business.
The ATO has accepted that multiple supplies (such as land and buildings together with the business) constitute one “going concern” following Debonne Holdings Pty Ltd v Commissioner of Taxation and the subsequent GST Ruling GSTR 2002/5 contains several examples, including those of a motel.
While initially straight forward, the “going concern” concept can become tricky. For instance where a business is being sold out of a larger business, or where the premises are to be retained by the vendor as a rental property.
The importance of seeking specialist advice in regard to structuring an acquisition cannot be understated. Merely ticking a box can be fraught with unintended consequences.
Given the often substantial sums involved in trading venues, the effects of having to cash flow a GST mistake, compounded by stamp duty on top of that (potentially with penalties and interest), mean timely structuring advice is a worthy investment.
Additionally, vendors need to take advice in relation to the Capital Gains Tax (CGT) implication of a sale, including accessing the CGT rollover and other tax concessions available.
Hanrick Curran has been providing specialist advice to hotel owners for over 30 years and we welcome the opportunity to assist venue owners with guidance as to tax efficient structuring of a venue transaction. Please call one of our Hospitality specialists, Peter Maletz, Kim Hanrick, Tony Hunt or Ian Vander Woude on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.