Transcript
Question:
What are some tax considerations in deciding whether I should buy the assets of a business or the shares of a business?
Answer
Generally, if you're buying the assets of a business, you'll want to understand the tax characteristics of those assets. For example, will each asset that you'll buy give you a write-off for tax purposes, and if so, how will you claim the write-off over time?
If you're buying the assets of a business, you may be able over time to write off the assets for tax purposes based on what you paid for them.
On the other hand, if you're buying a business by purchasing the shares of the company that owns the business, as opposed to directly buying the assets, you'll be inheriting the existing tax cost of the assets within the business, and you may only be able to write off the assets from their current tax cost within the company.
Now there are planning techniques you might be able to use to bump-up the tax cost of certain company assets, on the basis that the price you paid for the company's shares reflected the accrued gains within the company's assets.
You should also understand that when you buy the shares of a company, you may also inherit the recorded and unrecorded liabilities that exist in the company, including tax liabilities. So obviously it's essential that you know exactly what these liabilities are.
At Crowe Soberman, we can help you understand the tax liabilities you may be inheriting if you buy the company, by performing tax due diligence procedures on the company. This might include reading the company's past tax returns and financial statements, as well as speaking with the company's past owners and advisors.
The results of these tax due diligence procedures are very important, as they may be a factor in your negotiations to buy the company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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