New purchase price allocation rules, and what they mean for disposing business assets


The new Purchase Price Allocation rules surrounding how business assets are valued when sold as a bundle have come into effect as of 1 July 2021. Applicable to the sale of assets such as commercial property, forestry land or business, the new rules will bring consistency to agreements for the disposal and acquisition of property.

Business asset sales are a mix of taxable assets, depreciable assets like plant or machinery, and non-taxable assets like business goodwill.

If the allocation includes a higher proportion of taxable and depreciable assets then the buyer will benefit because they can claim expenses and depreciation. But if there’s a higher proportion of non-taxable assets in the mix the seller will benefit as this reduces their taxable income.

Under the new rules, both the buyer and the seller must make the same allocation. If an agreement cannot be reached, they also set out the process that must be adhered to by both the buyer and seller.

The rules also apply to sales of residential land for $7.5M or more, but only if neither buyer nor seller is an owner-occupier in relation to the land.   The rules don’t apply to sales of businesses by way of shares.

Want to be certain of your obligations when it comes to the disposal of business assets? Speak with us to ensure that you are in compliance with these updated requirements, or for assistance in readying the disposal. We’re here to help.

Posted on 10 Dec 2021, under Rule Changes.