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Employee entitlements - Need for clarity and tax planning opportunity


Complex negotiating issues arise where a vendor, owing employee entitlements at the time of sale, sells a business. These complexities arise because of two tax aspects of the entitlements in the sale transaction. First, the Commissioner considers any employee entitlement assumed by the purchaser as part of the consideration for the CGT event relating to the sale of the business. Secondly, when a purchaser who has assumed them pays the
employee entitlements the purchaser is likely to claim a tax deduction for the amounts paid.

This article discusses a tax planning opportunity which may become available if the business sale is structured appropriately. The Commissioner's approach, of including the amount of the employee entitlements assumed by the purchaser in the capital proceeds of the sale, leads to the conclusion that both parties will be better off if the employee entitlements are paid out by the vendor before the sale occurs.

Author profile

Michael Bennett CTA
Michael is a barrister practicing from 13 Wentworth Chambers in Sydney. He practices in Tax planning (including Superannuation, Estate Planning and Structuring), Federal and State Tax litigation, Commercial litigation and Bankruptcy and Insolvency litigation. From 2006 to 2011, before coming to the Bar, Michael was a solicitor in two boutique SME tax and commercial practices. He was a Judges Associate before that. Michael lectures in tax law in the UNSW Masters of Laws Program. Michael frequently writes for the Tax Institute or other professional bodies and gives presentations for various bodies on the areas in which he practices. - Current at 27 November 2019
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