• Service: Tax, Indirect Tax
  • Type: Regulatory update
  • Date: 26/11/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Jane Crisp

Jane Crisp
Director, Tax

+61 2 9335 7520

Earn-outs: buy now pay later – beware duty implications 

by Jane Crisp, Indirect Tax Specialist

New South Wales, Queensland, Western Australia, South Australia and the Northern Territory continue to impose duty at rates up to 5.75 percent on the acquisition of business assets. As a consequence, duty on an acquisition is often a material cost.

Business sale agreements often provide for a form of contingent consideration or 'earn-out' whereby a fixed amount is paid on completion with further contingent payments to be made on the occurrence of certain events such as the business meeting certain turnover targets.


Duty may be levied on the consideration that is contingently payable whether the contingency occurs or not. The amount of duty payable and the timing of the payment will depend on whether the contingent consideration is ascertainable or whether there is a maximum or minimum amount specified.


Some jurisdictions impose duty immediately on the maximum ascertainable consideration notwithstanding payment is contingent on the occurrence of certain events or financial performance after completion. Further, not all jurisdictions will allow a reassessment and refund if the contingent consideration is not paid. If there is no maximum amount specified or ascertainable, duty will generally be assessed on the minimum ascertainable amount although some jurisdictions may require up-stamping if additional consideration is paid.


The duty implications of any contingent consideration need to be considered carefully when negotiating the sale or acquisition of a business. If parties agree to an earn-out, it is preferable to avoid specifying a maximum or minimum amount if commercially practicable. Duty will generally be higher where the parties agree to a maximum amount.


Seeking duty advice at an early stage of negotiations and ensuring appropriate drafting of an earn-out clause can reduce or at least defer the duty cost in respect of contingent consideration that may or may not be paid.


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