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Employee entitlements - Need for clarity and tax planning opportunity

Published on 01 Jul 11 by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE

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
Michael is a Barrister with Seven Wentworth Chambers.
Current at 01 July 2011
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