Business Acquisitions - Due Diligence

Dated: September 2004

A purchaser of a business entity may inherit unexpected tax liabilities unless a detailed tax due diligence process is undertaken to identify undisclosed liabilities.

It is prudent to work through a detailed tax due diligence checklist for any acquisition. Common 'hot' areas for review as part of tax due diligence include:

• income tax, fringe benefits tax, payroll tax and Work Cover returns to ensure all liabilities have been dealt with;
• the entity's GST issues and compliance;
• the impact of tax consolidation - is the entity from an existing consolidated group so it may have joint and several liability for group taxes?
• recent acquisitions, disposals and restructures that may trigger CGT events;
• potential tax liabilities under various loan arrangements; and
• the need for tax warranties and/or indemnities from the vendor where issues arise.

We recommend seeking professional advice in relation to any acquisition to avoid the potential for nasty surprises.