Selling your business is one of the largest financial transactions of your life. Whether you sell the assets of the business or the shares in the company that owns it has major tax implications — for both you and the buyer. Getting the structure right before you sign can save hundreds of thousands of dollars.
NZ has no capital gains tax, so the profit on selling a business is often tax-free — but not always. Key taxable items on a business sale: depreciation recovery on assets sold above book value, stock (inventory) sold at profit, accounts receivable at their full value, and any amounts allocated to employment contracts or restrictive covenants. Goodwill is generally not taxable. A share sale transfers the company (not individual assets) and is usually tax-free for the seller — but less advantageous for the buyer. Get specialist tax advice before any business sale.
Asset Sale vs Share Sale — The Fundamental Choice
Asset Sale
In an asset sale, the buyer purchases specific assets of the business:
- Plant and equipment
- Stock/inventory
- Customer list and goodwill
- Business name and IP
- (Possibly) existing contracts
The company entity remains with the seller. The proceeds are received by the company (or individual if a sole trader).
Share Sale
In a share sale, the buyer purchases the shares in the company that owns the business:
- The buyer gets everything in the company — assets, liabilities, contracts, staff
- The seller receives the sale proceeds personally (for their shares)
Tax Treatment Comparison
| Item | Asset sale | Share sale |
|---|---|---|
| Goodwill | Generally not taxable (no CGT) | Not separately taxable — included in share price |
| Depreciation recovery | Taxable — assets sold above book value | Not triggered — no asset disposal |
| Stock/inventory | Taxable at sale price | Not separately taxable |
| Capital assets (property, plant) | May trigger bright-line or trading intent tests | Not triggered |
| Share sale proceeds | N/A | Generally not taxable — no CGT |
| Tax for buyer | Can claim depreciation on assets bought | Cannot reset asset values — inherits old book values |
What Is Taxable in an Asset Sale?
1. Depreciation Recovery
If you sell a depreciable asset for more than its current book value, the excess is taxable income: $$\text{Taxable recovery} = \text{Sale price} − \text{Book value}$$
Example:
- Machine originally cost $50,000; depreciated to book value of $15,000
- Sold for $35,000
- Taxable recovery: $35,000 − $15,000 = $20,000 ordinary income
2. Stock/Inventory
Closing stock sold is ordinary trading income — taxed at your marginal rate (or company rate).
3. Accounts Receivable (Debtors)
If debtors are sold to the buyer, the amount received is taxable income (it would have been income when collected anyway).
4. Amounts Allocated to Non-Compete Agreements
If any portion of the sale price is allocated to a non-compete or non-solicitation agreement from the seller, IRD may treat this as taxable income (it is effectively payment for future services or restrictions).
5. What Is Usually NOT Taxable
- Goodwill — NZ has no capital gains tax on goodwill. A business sold for $1.5 million when its net tangible assets are $500,000 results in $1 million of goodwill — generally not taxable to the seller
- Trade names, brands, customer lists — generally treated as goodwill (not taxable) unless specifically structured otherwise
- Capital assets sold at below book value — give rise to deductible depreciation losses
The Share Sale Advantage for Sellers
Selling shares is generally not taxable for the seller:
- No capital gains tax on share sale profits in NZ
- No depreciation recovery triggered
- Goodwill is embedded in the share price — not separately taxed
- A highly profitable business can be sold at a significant multiple of net assets, with the gain entirely tax-free to the seller
This is why sellers generally prefer a share sale.
Why Buyers Prefer Asset Sales
Buyers prefer asset sales because:
- They can reset asset values to current market value and restart depreciation
- They only acquire specific known assets — not hidden liabilities
- They can cherry-pick which assets and contracts to take
- Goodwill purchased in an asset sale is not depreciable, but all other specific assets get full depreciation from market value
GST on Business Sale
- Asset sale: Usually GST applies — seller charges 15% on taxable assets (plant, stock, goodwill). However, if sold as a going concern with the buyer GST-registered, the sale can be zero-rated (no GST changes hands). This requires a written agreement between the parties that the business is a going concern.
- Share sale: No GST — shares are an exempt supply.
Always confirm the going concern zero-rating in writing with your lawyer before settlement.
Earnouts and Deferred Payments
Some business sales include an earnout — additional payments based on post-sale performance:
- Earnout payments are generally taxable when received (treated as income from the sale)
- Complex timing and nature-of-payment issues arise — specialist tax advice essential
Sole Trader Business Sale
For sole traders (not a company), a business sale is an asset sale by default:
- Proceeds from selling assets are taxable to the extent they exceed depreciated values
- Goodwill proceeds are generally tax-free
- No share sale option (no company)
Frequently Asked Questions
I started my business myself. If I sell it for $2 million, is the whole amount taxable?
Not necessarily. The taxable portion depends on the asset allocation. If most of the value is goodwill (which it usually is in a people-based or brand-based business), that portion is not taxable. Depreciation recovery on physical assets and taxable stock proceeds are taxable — but that is often a small fraction of the total. Get a tax adviser involved to allocate the sale price correctly.
My buyer wants an asset sale but I want a share sale. How do we compromise?
The difference in tax cost to each party is real. Often sellers accept a lower price to do a share sale (they keep the tax-free gain); buyers may pay more for an asset sale (they get better depreciation). A tax adviser can model both scenarios and find a price that works for both sides.
I’m selling my business through a company. Will there be double tax?
If your company sells assets and then distributes the proceeds as a dividend, double tax can arise — company tax at 28% on taxable gains, then dividend tax on distribution. Imputation credits offset this partially but not fully for higher-rate shareholders. Structuring as a share sale avoids this.