Abolition of stamp duty on share transfers
The New Year has brought with it the potential for significant stamp duty savings for those considering corporate sales or restructures in Queensland. The Queensland government has effected the changes it flagged as part of the Revenue and Other Legislation Amendment Act 2006 to abolish stamp duty on the transfer of marketable securities not listed on the Australian Stock Exchange (i.e. shares in private companies).
The transfer must occur after 1 January 2007 to take advantage of this change – transfers which occurred on 31 December 2006 or before will still be liable for stamp duty. Previously, share transfers attracted duty at a rate of 60c per $100 in market value of the shares transferred.
These state government tax concessions are a part of the 2005 Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. It is important to keep in mind that not all state governments have reduced or abolished duties for unquoted marketable securities and the stamp duty on share transfers is still payable in the following states:
1. New South Wales – abolished from 1 January 2009
2. Australian Capital Territory – abolished from 1 July 2010
3. South Australia – reduced by 50% from 1 July 2009 and abolished from 1 July 2010.
The practical effect
This change to the Queensland duty regime will reduce the cost, in terms of both up-front and compliance costs, of the sale or transfer of corporate entities that take place in many franchise-related transactions. It may prompt a change in business strategy towards the sale of the corporate entity controlling the business and away from the practice of selling the corporate asset (i.e., the business).
For example, franchisees may prefer to sell their franchisee company rather than the business operated through that company. Anyone seeking to take advantage of this duty concession still needs to consider the risks in buying a company – in particular, the purchaser will take on all of the company liabilities (whether known or unknown).
The cost of a due diligence investigation into a share sale rather than a business sale can be higher which may outweigh the benefit received from reduced stamp duty. Transferring a business out of the company can isolate those risks, and appropriate indemnities and risk-management procedures must be put in place in the sale contract.
Specific franchise issues
Two issues arise in particular for franchisors:
1. Franchisors need to ensure their franchise agreement contains a "change of control" clause – i.e. a change in the shareholders of a corporate franchisee is considered a transfer of the franchise, triggering the transfer requirements under the franchise agreement.
2. Many franchisors have a standard business sale contract, or conditions to be inserted in a contract, for use when their franchisees sell their franchised business. Franchisors should prepare a similar contract or set of conditions for use when franchisees intend to sell the shares in their franchisee company rather than simply transferring the business. The issues to be considered in each contract are quite different. 04.06.2007
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