GST and Tax When Selling a Business in NZ: What You Need to Know

# GST and Tax When Selling a Business in NZ: What You Need to Know

Selling your business is likely the largest financial transaction of your life. Yet many NZ business sellers are blindsided by the tax implications — they plan for the sale price but not the tax bill that follows.

This guide covers the key tax issues you need to understand before putting your business on the market. It is not a substitute for professional tax advice, but it will help you ask the right questions and avoid costly surprises.

The Big Picture: NZ Does Not Have Capital Gains Tax (Mostly)

New Zealand is one of the few developed countries without a comprehensive capital gains tax (CGT). This is generally good news for business sellers. However, **"no capital gains tax" does not mean "no tax on the sale."**

Several tax obligations still apply:

GST on Business Sales

Are Business Sales Subject to GST?

If you and the buyer are both GST-registered (or the buyer is required to be GST-registered), the sale can qualify as a **going concern** and be **zero-rated for GST purposes** under section 11(1)(mb) of the Goods and Services Tax Act 1985.

Zero-Rating Requirements

For the sale to be zero-rated, ALL of the following must be true: 1. The sale is a supply of a going concern 2. The buyer is GST-registered (or will be immediately) 3. The buyer will use the assets to carry on the same or similar taxable activity 4. Both parties agree in writing that the supply is a going concern

If these conditions are met, no GST is charged on the sale. This is by far the most common scenario for NZ business sales.

What If Zero-Rating Doesn't Apply?

If the buyer is **not** GST-registered (or the sale doesn't qualify as a going concern), GST at 15% applies to the sale of assets. This can add a significant amount to the cost.

**Example:** A business with $400,000 in assets would have $60,000 in GST on top, making the total $460,000. If the buyer can't claim input tax credits, this becomes a real additional cost.

Asset Sales vs Share Sales

This is one reason some sellers prefer to sell shares rather than assets. However, buyers generally prefer asset purchases for other tax reasons (they can claim depreciation on the assets from day one).

Income Tax Implications

No General Capital Gains Tax — But Watch Out

While NZ doesn't have a CGT, the following elements of a business sale ARE subject to income tax:

#### 1. Trading Stock Stock (inventory) sold as part of the business is taxable income. It's valued at cost or market value, and the proceeds are included in your final tax return.

If you have $30,000 of stock, that $30,000 is part of your taxable income in the year of sale.

#### 2. Depreciation Recovery (Clawback)

This catches many sellers by surprise. If you've been claiming depreciation on assets (equipment, vehicles, fitout) and you sell them for more than their tax book value, the difference is **taxable income**.

This applies to every depreciable asset. Across an entire business, the total depreciation recovery can be substantial — sometimes $50,000–$100,000+.

#### 3. Restrictive Covenant / Non-Compete Payments

If the Sale and Purchase Agreement includes a payment for a restraint of trade or non-compete clause, this amount is **taxable income** to the seller and **tax-deductible** to the buyer over the restraint period.

#### 4. Goodwill

Here's the good news: the portion of the sale price allocated to **goodwill** is generally **not taxable** in New Zealand (as there's no CGT). This is why the allocation of the purchase price between different asset classes matters enormously.

Purchase Price Allocation

**Tip:** Sellers want more allocated to goodwill (tax-free). Buyers want more allocated to depreciable assets (tax-deductible). This is a key negotiation point, and both parties' accountants should be involved.

Practical Tax Planning for Sellers

1. Get Professional Advice Early

2. Understand Your Depreciation Position

Run a depreciation schedule on all your assets. Know the book value of every major item so you can anticipate the clawback.

3. Consider Timing

The year you sell, your taxable income will likely be higher than usual (due to depreciation recovery and stock). Consider whether selling early or late in the financial year creates a better tax outcome.

4. Structure the Sale Appropriately

5. Keep Clean Records

Buyers (and their accountants) will request detailed financial records. Having clean, organised books makes the due diligence process smoother and can actually increase the sale price — buyers pay more for certainty.

Common Tax Mistakes When Selling a Business

1. Not consulting an accountant early enough** — you need tax advice before setting the asking price, not after the sale
2. Ignoring depreciation recovery** — this is the most common "surprise" tax bill
3. Poor purchase price allocation** — leaving it vague means IRD may determine the split unfavourably
4. Forgetting about provisional tax** — your final year's tax bill may be much larger than usual
5. Not keeping GST records** — if zero-rating is challenged, you need documentation

List Your Business with Confidence

When you're ready to sell, list your business on OpenBiz for free. Our platform connects you with qualified buyers across New Zealand and provides tools to help you price your business correctly from the start.

Use the free AI valuation tool to get an instant estimate before you engage a broker or accountant — it gives you a solid starting point for your planning.

Disclaimer

This article provides general information about tax when selling a business in New Zealand. It is not tax advice. Tax rules change, and individual circumstances vary. Always consult a qualified chartered accountant or tax adviser for advice specific to your situation.