What is Section 52?

Section 52 is also known as Statement by a vendor of a small business.

Section 52 is one part of the Estate Agents Act 1980.

This statement is required for the sale of a small business at a price up to $450,000. It is usually completed by the seller and the Certified Practiving Accountant using the form prescribed under the Estate Agents (General, Accounts and Audit) Regulations 2018.

The statement provides a due diligence guide for a buyer and sets out the financial performance of the business over the last two years. From 20 May 2018, the statement must also provide the financial performance for the current financial year up to the most recent quarter. If the statement is not provided to the purchaser, the contract can be voided.

For the purposes of section 52 of the Estate Agents Act 1980, a small business is a business in which the goodwill, plant, equipment and fittings being sold have a total price of $450 000 or less. In accordance with section 52(8), the reference to price in this paragraph does not include an amount representing the value of a liquor licence or permit under the Liquor Control Reform Act 1998.

This Statement contains 6 sections:

Section A – Important information for Vendor

Section B – Important information for Purchaser

Section C – Business information

Section D – Vendorʼs Business Operating Report

Section E – Vendorʼs declaration

Section F – Acknowledgement of Receipt by the Purchaser

In this Statement a person who is seeking to sell a small business is referred to as a ʻvendorʼ and a person who is seeking to buy a small business is referred to as a ʻpurchaserʼ

Section D of Sectioin 52 – Vendor’s Business Operating Report is prepared only Certified Practicing Accountants like us.

Some of the information required in Section D are

1. Gross income
2. COGS
3. Profit and margins
4. Wages,
5. Workcover
6. Vendor’s expenses, etc
7. Debtors balance
8. Most importantly – Contingent liability taxation disputes with the ATO, litigations, etc.

As an Accountant and Tax Agent, we can help you to perform Tax Due Diligence, 

If you are buying an Entity, there are 

Some of the Potential Advantages like

• Commercial benefits- continue employee and customers
• Access to tax attributes franking credits
• Access to tax losses
• Access to the small business CGT concessions

Some of the Potential disadvantages like

Commercial risks – A comprehensive legal and financial due diligence, Alternatively (or in addition) robust warranties/indemnities, The vendor should remove all related party arrangements (e.g. loans) prior to sale.

Tax compliance history inherited – tax payment obligations not being up to date, the entity having adopted incorrect / controversial / high-risk tax positions during the open review period, the entity having unresolved ATO disputes.

Asset tax values remain unchanged – no opportunity for the purchaser to increase tax values – depreciating assets — the entity continues to claim depreciation based on adjustable values (which may be zero. CGT assets — no increase to CGT cost base)

Some of  the Tax issues for consideration –

• Tax governance
• Tax compliance history
• Dealing with the risk of extended review periods
• Record-keeping obligations
• Superannuation guarantee (SG) compliance history
• Tax payment history
• CGT assets
• Small business replacement asset roll-overs
• Pre-CGT assets held in the entity
• If the target entity is acquired from a consolidated group

Director penalties – 

This is because directors who are appointed following the acquisition can be made personally liable for certain outstanding tax liabilities of the company that arose in tax periods prior to the person becoming a director.

If you are buying the business assets.

Potential advantages

• Commercial advantages – (a ‘clean slate’). new legal structure
• Tax values can potentially be uplifted. Depreciating assets — opening adjustable value is based on a reasonable allocation of the purchase price. CGT assets — the first element of the cost base is determined based on a reasonable allocation of the purchase price.
• GST ITCs – The purchase of a business as a ‘supply of a going concern is GST-free, not input-taxed.

Tax issues for consideration

When a vendor sells their trading stock as part of the sale of the business. 70-90 applies to require the vendor to include in their assessable income the market value of the item on the day of the disposal

Div 40 assets

Allocating the purchase price

If the sale agreement allocates a single sum for two or more assets that are depreciating assets, the purchaser will have to apportion the single sum to each of the individual depreciating assets using some reasonable and justifiable apportionment method. 

Caution required about initial repairs

Accessing TFE

The due diligence should include a review of the depreciating assets that are to be acquired from the perspective of whether full expensing can be claimed under the TFE provisions.

This requires an analysis of whether:

• The purchaser starts to hold the asset, and starts to use it or have it installed ready for use, for a taxable purpose prior to the end date for TFE (currently 30 June 2022 but proposed to be extended to 30 June 2023107);
• The purchaser is an eligible taxpayer;
• The depreciating assets that are acquired are eligible assets.

There are many other issues to consider and each business has different circumstances and conditions.

Come and talk to us today for obligation free consultation.