Business Stamp Duty
This article is based on information provided by the State Revenue Department.
person acquiring an existing business is required to pay Stamp Duty when goodwill and/or other certain property is acquired where:
(a) the acquisition is evidenced by a written contract for sale of business between parties; or
(b) there is no written agreement and the purchase includes any of the following items:
- Business Assets
- Land, buildings and all property thereon
- Mining tenements and all property thereon
- Business Licence
- Chattels and other property
- Fixed plant and equipment.
What do you need to do when a business is acquired?
(a) If you sign a contract to purchase a business or if you are taking over a business where the acquisition is dutiable property, the person liable for the duty must submit it for assessment of stamp duty within two months after the date of first execution.
There are some new rules in respect of conditional contracts. The new rules give a purchaser longer than 2 mths from the signing of the contract to stamp the contract if certain conditions are present.
(b) Where there is no such instrument, or where only some of the dutiable property is the subject of one or more dutiable instruments:-
- (i) The person liable for the duty must submit for assessment of stamp duty, a statement detailing the dutiable property which is not covered by an instrument along with any instruments;
- (ii) All other parties to the acquisition must also give notice that the acquisition has occurred;
- (iii) The statement and the notice must be submitted within 2 months after the acquisition occurred. Again note that if the contract is subject to conditions, the date for submission of the agreement for stamp assessment may be later.
What is property?
For stamp duty purposes “property” comprises anything that:
(a) has a value; and
(b) is capable of being conveyed or transferred.
Pursuant to the State Revenue’s interpretation, ‘Property’ includes anything in the nature of proprietary rights and interests.
The following are considered as property and are dutiable when purchased:
- Business Assets (eg. goodwill, a business identity, business licence, intellectual property and restraint of trade agreement)
- Prescribed Licence (eg. fishing licence, liquor licence, taxi licence)
- Chattels (plant and equipment) – dutiable when transferred with any “other property” (contracts executed on or after 01 January 2004)
- Tenant’s fixtures and fittings
- Land, buildings and all property thereon
- Mining tenements and all property thereon
Are there any properties which are exempt from stamp duty?
Yes, the following properties are some examples of properties exempt from duty:
- Trade debts
- Cash or money in an account at call
- Negotiable instruments and money on deposit with any person
- Choses in action with respect to work in progress (non-physical part- completed work such as unbilled professional fees, etc.).
- Ships or other local marine vessels
- Stock-in-trade.
How much duty is payable?
The rates below are current as at October 2004.
| Property Value | ob | ||
| $0 – $ 80 000 | $2.00 | per $100 or part thereof | |
| $ 80 001 – $100 000 | $ 1 600 + | $3.00 | per $100 or part thereof in excess of $80 000 |
| $100 001 – $250 000 | $ 2 200 + | $4.00 | per $100 or part thereof in excess of $100 000 |
| $250 001 – $500 000 | $ 8 200 + | $5.00 | per $100 or part thereof in excess of $250 000 |
| $500 001 and upwards | $20 700 + | $5.40 | per $100 or part thereof in excess of $500 000 |
Who is responsible for payment of the duty?
(i) The person who purchases the dutiable property is liable for the payment of stamp duty
(ii) If the dutiable property is gifted, the donor is liable for the payment of the duty.
What if I do not lodge an instrument or statement on time?
There may be a penalty tax of up to 100% of the duty assessed if the instrument or statement is not lodged by the required lodgement date.
Generally instruments must be lodged, within two (2) months after the date of first execution.
Therefore any potential buyers of businesses should remember to include in their costing, the cost of stamp duty.
If a bank loan is being applied for , the purchaser should consider including the cost of the stamp duty in their loan applications.
The other issue that crops up sometimes is the cost of GST. Generally, if a business is being bought as a going concern, there is no GST payable. However be aware of situations where the vendor stops trading before the transfer of the business. You should always ensure that the business is still in operation before the settlement takes place.
Portfolio Settlements are able to assist you in any business purchase that you are considering. Any requirement for legal advice can be provided in house by Tan and Tan Lawyers.