Business Purchase and/or Transfer of Sublease in the Australian Capital Territory
By Peter Murphy
In the Australian Capital Territory stamp duty on the value of a transfer of a business has been abolished. In theory, then, if you purchase a business you should not pay stamp duty.
There is however an idiosyncrasy in the ACT stamp duty law under which the Commissioner for ACT Revenue considers it legal to impose ad valorem stamp duty on the value of goods transferred on the sale of a business if there is at the same time a transfer or assignment of a lease of premises.
In the ACT the land title system consists of Crown Leasehold. Any lease of premises by the Registered Crown Lessee is known as a sublease.
Most businesses use leased premises and have their occupation entitlement in a sublease.
In the ACT a transfer of a Crown Lease or a sublease and any leases down the line from them is subject to stamp duty on the value of the interest transferred.
Typically in a business sale, the purchase price paid is calculated on goodwill, assets and equipment and stock in trade. If there is a sublease to transfer it is done at normal value.
A transfer of a sublease for normal value attracts minimum stamp duty of $50.00.
The sale of business is, in theory, stamp duty free.
The issue this article addresses arises when the sale of business involves a transfer or assignment of sublease. There is no issue if there is no sublease to be transferred or if there is to be a new sublease granted. There is no stamp duty imposed on a grant of a new sublease.
The Commissioner for ACT Revenue imposes stamp duty, however, on the value of goods – assets and equipment – in a business transfer if there is also associated with that transfer a transfer of a sublease.
The Commissioner bases this practice on the provision in the Stamp Duties Act which imposes duty on the sale of goods if they are subject to an arrangement that includes a dutiable transaction over any dutiable property (section 10 (i)(i)). The nominal duty of $50 payable on the transfer of sublease is the dutiable aspect of the arrangement.
The Commissioner takes this position regardless of the fact that the goods are sold as part of a non dutiable business sale and not the transfer of sublease, which is incidental to the actual transaction for no actual value.
If a business transfer involves the transfer of valuable machinery the duty imposed by the Commissioner can be quite high. It is calculated at the same rates as duty on the transfer of land.
The way to avoid this consequence is for the parties to a business sale which involves goods of any real value, to ensure the premises to be occupied by the business are subject to a new sublease and not the transfer or assignment of an existing sublease.
The parties must take this into account when planning their strategies for premises needed for the business.
Some examples to illustrate the situation are as follows:
Scenario 1
Joe runs a printing business. He owns the premises from which he operates, in the ACT. Joe’s business owns printing machines worth $500,000. Joe sells his business to Bill – and enters into a sublease where Joe is landlord and Bill is tenant, which commences on the date of the sale. No stamp duy is payable by Bill on the equipment in the business purchase because there is no sublease transfer.
Scenario 2
Joe runs a printing business. He leases the premises from a third party. Joe’s business owns printing machines worth $500,000. Joe is selling his business to Bill. Joe’s sublease of the business premises is about to expire, so Joe arranges for his landlord to grant a new sublease to Bill from the date of the business sale. In this case, no stamp duty is payable by Bill on the equipment in the business purchase because there is no sublease transfer.
Scenario 3
Joe runs a printing business. He leases the premises from a third party. Joe’s business owns printing machines worth $500,000. Joe is selling his business to Bill. Joe’s sublease of the business premises has another 3 years to run, so part of the sale to Bill includes a transfer of Joe’s existing sublease to Bill. Bill will pay stamp duty on $500,000 on the purchase of the business – the stamp duty payable in that case being $20,500.00.
For more informatoin contact Cassandra Emmett:
- email Cassandra at: cemmett@elringtons.com.au
- call Cassandra on: 02 6206 1320
Or Peter Murphy
- email Peter at: pmurphy@elringtons.com.au
- or Phone Peter on: 02 6206 1322
