Buying a Business in NZ: Due Diligence, Structure, and Tax

Buying an existing business is one of the most significant financial decisions you will make. Done well, you acquire customers, systems, and cash flow from day one. Done poorly, you inherit someone else's problems — and sometimes their tax debt.

This guide covers the three areas where your accountant adds the most value before you sign: due diligence, structure, and tax.

Once you have signed a sale and purchase agreement, your options narrow considerably. The structure you choose, the price you pay, and the way you allocate that price between assets all have tax consequences that play out for years. Getting advice before you commit — not after — is what separates a good acquisition from an expensive one.

Due diligence is the process of verifying that what the vendor is selling is what they say it is. For a business purchase, that means examining the financials, the tax position, the contracts, and the operations.

Start with at least three years of financial statements. You are looking for:

• Revenue trends — is the business growing, stable, or declining?
• Gross margin consistency — unexplained margin swings can indicate stock issues, pricing problems, or revenue manipulation
• Owner's salary and add-backs — many small business owners run personal expenses through the business; these need to be identified and normalised to get a true picture of profitability
• Debtors and creditors — aged debtors tell you about collection quality; large creditor balances may indicate cash flow stress
• Related-party transactions — loans to or from shareholders, management fees, and inter-company transactions can distort the numbers

This is where many buyers underinvest. IRD debt does not disappear on a business sale — in some structures, you can inherit it. Check:

• IRD account status — are all returns filed and all taxes paid? Ask for an IRD account statement
• GST position — is the business GST-registered and up to date?
• PAYE compliance — are employee deductions being filed and paid on time?
• Provisional tax — is the business on track for the current year, or is there a shortfall building?
• Any IRD investigations or disputes — these must be disclosed but are not always volunteered

If the business has employees, also check that holiday pay, leave entitlements, and Kiwisaver obligations are correctly accounted for. These are liabilities that transfer with the business.

Beyond the numbers, assess:

• Key customer concentration — if 40% of revenue comes from one client, that is a risk
• Key person dependency — if the business only works because of the vendor's relationships, what happens after they leave?
• Lease terms — is the premises lease assignable, and on what terms?
• Supplier contracts — are they transferable?
• Intellectual property — who owns the brand, systems, and processes?

One of the most important decisions in any business acquisition is whether you are buying the assets of the business or the shares in the company that owns it.

In an asset sale, you buy specific assets — plant, equipment, stock, goodwill, customer lists, intellectual property — and leave the company (and its liabilities) behind. This is generally the preferred structure for buyers because:

• You start with a clean entity
• You can depreciate the assets you purchase at their purchase price
• You do not inherit historical tax liabilities or unknown contingencies

The downside is that the vendor typically pays more tax on an asset sale, so they may seek a higher price to compensate.

In a share sale, you buy the shares in the company. You acquire everything — assets, liabilities, tax history, and all. The advantages are:

• Contracts, leases, and licences often transfer automatically (no need for third-party consent)
• The vendor may prefer it for tax reasons, which can create room to negotiate on price

The risks are significant. You need thorough due diligence on the company's full history, and you should obtain tax indemnities from the vendor covering any pre-settlement tax liabilities that emerge after the purchase.

In an asset sale, the total purchase price must be allocated across the individual assets being acquired. This allocation matters because:

• Depreciable assets (plant, equipment, fit-out) can be depreciated, reducing your taxable income over time
• Trading stock is deductible when sold
• Goodwill is not depreciable for tax purposes in New Zealand
• Restrictive covenants (agreements by the vendor not to compete) are treated as revenue income to the vendor and a deductible expense for the buyer over the term of the covenant

The vendor and buyer must agree on the allocation, and both are bound by it for tax purposes. IRD can challenge allocations that appear artificial, so the allocation should reflect genuine commercial values.

Once you have agreed to buy, you need to decide what entity will own the business. The main options are:

A limited liability company is the most common structure for business ownership in New Zealand. It separates your personal assets from the business, and the flat 28% company tax rate is often lower than the top personal rate of 39%.

See our guide to how to pay yourself from a company for how to extract profits tax-efficiently once you are operating.

A trust can own the shares in a company, providing an additional layer of asset protection and estate planning flexibility. However, following the increase in the trust tax rate to 39%, the tax advantages of holding business income in a trust have largely disappeared. Trusts still have a role in asset protection and succession planning — see our post on when trusts still make sense in 2026.

An LTC passes income and losses through to the shareholders personally. This can be useful if you expect early losses that you want to offset against other income. See our guide to look-through companies for more detail.

Most business acquisitions involve some vendor finance, bank debt, or both. The tax treatment of interest on borrowings to acquire a business is generally deductible, but the rules are not straightforward — particularly where the purchase involves a mix of assets and goodwill, or where the structure involves a holding company.

Get advice on the financing structure before you draw down any debt, not after.

1. Engage your accountant early — ideally before you make an offer, certainly before you go unconditional
2. Request three years of financials and an IRD account statement as part of your due diligence conditions
3. Agree on the asset allocation before settlement, not after
4. Set up your purchasing entity in advance — you cannot easily change the buyer after the agreement is signed
5. Get tax indemnities if you are buying shares

Eastmure & Associates works with buyers throughout the acquisition process — from reviewing financials and structuring the purchase through to setting up the new entity and getting the accounts right from day one.

If you are considering buying a business in New Zealand, get in touch before you make an offer.