The single biggest decision you'll make after price
Once a price is agreed, the structure of the deal — share sale or asset sale — quietly determines how much of that price actually lands in your bank account. New Zealand has no general capital gains tax, which makes the structure choice especially powerful, and especially easy to get wrong.
This is a plain-English overview written from a broker's seat. Every situation has variables that change the answer; nothing here is a substitute for advice from your accountant and lawyer.
Share sale vs asset sale: the core difference
In a share sale, the buyer purchases the shares in the company that owns the business. The legal entity, its contracts, its employees, its liabilities — everything stays inside the same company. Only the ownership changes.
In an asset sale, the buyer purchases the underlying assets — plant, stock, goodwill, intellectual property, often the customer book — and usually offers employment to the staff. The original company is left as a shell, typically wound up after settlement.
Buyers usually prefer asset sales (cleaner risk, depreciation reset, often better tax outcomes for them). Vendors often prefer share sales (one cheque, fewer tax gotchas, walk away clean). The negotiation between those preferences is where good advice pays for itself many times over.
Why share sales often favour the vendor
For most NZ private company vendors who have held shares as a long-term investment, sale proceeds are generally treated as capital and fall outside the income tax net. Provided the shares were not acquired with a dominant purpose of disposal and the vendor is not in the business of dealing in shares, the gain on sale is typically not taxable.
That single fact is why share sales are the default starting position for most vendor advisers. It is also why buyers push hard against them.
Why buyers push for asset sales
Buyers prefer asset sales for three reasons:
- Depreciation reset. Buying assets at a stepped-up value gives the buyer fresh depreciation deductions against future profits.
- No inherited liabilities. Tax disputes, employment grievances, warranty claims, an undisclosed loan — none of these follow the assets across.
- Cleaner GST treatment when the going-concern rules apply (see below).
A well-prepared vendor anticipates this and either accepts an asset structure with eyes open about the tax cost, or negotiates a price uplift to compensate for it.
Depreciation recovery: the asset-sale tax trap
In an asset sale, any depreciable asset sold for more than its tax book value triggers depreciation recovery income — fully taxable at the company's marginal rate. For a long-held business with heavily depreciated plant, vehicles or fit-out, this can be material.
The classic example: a hospitality fit-out depreciated down over a decade, sold as part of a going concern at a strong price. The "gain" on that fit-out is recovered depreciation, not capital, and the company pays tax on it in the year of sale. Most vendors don't see this coming until their accountant runs the numbers post-deal.
GST and the "going concern" rules
If both parties are GST-registered and the sale is structured as a going concern (the business is operating at settlement and the buyer intends to keep operating it), the sale can be zero-rated for GST. This is the standard expectation for NZ business sales.
Key points:
- The going-concern treatment must be explicitly recorded in the sale agreement.
- Both parties must be GST-registered at settlement.
- The agreement should state that the price is "plus GST (if any)" and that the parties agree the supply is a going concern zero-rated under section 11(1)(m) of the GST Act.
- If anything goes wrong (one party deregisters, the business stops trading before settlement), the price can suddenly become "plus 15% GST" — a nasty surprise.
Trading stock and the value allocation
In an asset sale, the price is allocated across the asset categories — typically plant, stock, intangibles (goodwill) and sometimes restraint of trade. Each allocation has tax consequences:
- Plant: depreciation recovery to the vendor; depreciation deductions to the buyer.
- Stock: ordinary income to the vendor at the allocated value; cost base to the buyer.
- Goodwill: generally non-taxable capital to the vendor; non-deductible capital cost to the buyer.
- Restraint of trade: taxable income to the vendor in most cases.
Because vendor and buyer have opposing tax incentives on each category, the allocation is genuinely negotiated. Since 2021, IRD rules require both parties to use the same allocation, with default consequences if they don't agree — so allocation should be agreed in the SPA, not left to the accountants.
Vendor finance and earn-outs
If part of the price is deferred — vendor finance, an earn-out, a hold-back — the tax timing can be complicated. Earn-out payments may be treated as ordinary income depending on how they're structured and what triggers them. Get this looked at by your accountant before you sign a Heads of Agreement, not after.
Trusts, holding companies and pre-sale restructuring
If you own your business directly in your personal name, the tax outcomes are usually simpler but the asset protection is weaker. Many advisers recommend a holding company structure ahead of a sale to provide flexibility — but restructuring close to a sale can trigger anti-avoidance scrutiny and the associated-persons rules. The time to fix structure is years before sale, not weeks before.
What this means for you
Three practical steps:
- Get your accountant in the room before you sign anything, including a Heads of Agreement. Structure decisions made early are cheap; decisions reversed late are expensive.
- Model the after-tax cheque under both structures, including depreciation recovery, before you anchor on a sale price.
- Negotiate the structure — and any price adjustment — explicitly, rather than letting it be decided by who gets the first draft of the agreement.
General information only — every sale has tax variables that matter; talk to a chartered accountant who handles SME sales before making structural decisions.