Start-ups are being urged to register their legal interests in assets held by another party by January 30, as the cost of not registering can exceed any benefits of the contract or arrangement.
The Federal Government has confirmed the new national Personal Property Securities Register will commence on January 30, allowing lenders and businesses to register their security interests.
Secured parties, buyers and other interested parties can search the register to find out if a security interest is registered over the personal property.
Personal property is any form of property other than land, buildings or fixtures that form a part of that land.
It can include tangibles such as cars, machinery and crops, and intangibles such as intellectual property and contract rights.
A personal property security is when a secured party takes an interest in personal property as security for a loan, or enters into a transaction involving the supply of secured finance.
An example is when a person borrows money from a bank and offers it as collateral or security for the loan. The bank’s interest over the collateral is a personal property security.
As a result of the PPS reform, a number of existing Commonwealth, state and territory personal property security registers will close.
Security interests currently registered on those registers will generally be migrated to the national register.
As companies that fail to register now risk losing business assets in the course of supplying goods and services, the costs of not registering can now far exceed any benefits of the contract or arrangement.
According to Greg Hayes, a director of business advisory firm Hayes Knight, issues arise for start-ups when they look at buying another business.
“The hard work is to find the right business, making sure that it stacks up and then agreeing on the price,” Hayes told StartupSmart.
“But there may be one more important step – agreeing the apportionment of the price across the different assets that make up the business.”
“[This] depends on what assets are included in the sale. In a typical business, you may be buying plant and equipment or goodwill and stock.”
“These assets will have different tax treatments and this is why there are differences between the way a vendor and buyer wish to allocate the price.”
“[For example,] goodwill is a capital asset. The vendor will calculate a capital gain or loss on the sale of the business.”
“Even with a capital gain, they may be able to reduce the tax to nil using the CGT (capital gains tax) small business concessions.”
“For the purchaser, there is no tax deduction on purchase of goodwill. It becomes a capital asset, and a tax offset will only be available if and when the business is later disposed of.”
“The tendency is for vendors to want to push more of the sale price into the goodwill as it will cause a better tax outcome for them.”
Hayes says start-ups should try to avoid a situation where the contract is silent on the apportionment of the price and both parties make up their own minds.
“Try to work through an agreement on the price. It could save some later tax headaches,” he says.