Selling A Business With Outstanding Gift Certificates

Gift cards in Australia are legal to be sold with a three-year redeemable period, providing the holder with plenty of time to redeem the card at the business. However, when a business is sold, the new owners are generally not obligated to honour these gift cards unless the business was sold as a going concern.

Outstanding gift cards should have their terms and conditions clearly stated, and new business owners should make their updated terms and conditions clear to consumers to avoid any disappointment.

What does selling a business with outstanding gift certificates mean?

Selling a business with outstanding gift certificates refers to any business listed for sale that has previously offered gift cards. Gift cards are sold by many businesses, and customers can load a monetary value or experience onto the card for the cardholder to redeem at a time that suits them. These cards are typically given as gifts or incentives at work. When you sell a business that has offered gift cards, you must consider how this will affect the gift card holders.

New laws in Australia mean that a gift card is redeemable for at least three years from the day they were supplied or purchased. When you sell your business, there could be customers with valid gift cards wondering if they can use them.

When a business is sold as a going concern, gift cards are legally valid until their expiry date. Businesses sold as a going concern are able to resume trading immediately, and your customers can use their gift cards up until the point of expiry. You may want to encourage the buyer to make this clear to customers to avoid any unused gift cards being wasted.

When a business is sold in any other circumstances, there is no legal obligation to honour the gift cards. The decision is often down to the buyer, who can decide whether they want to continue supplying and honouring gift cards or not. It can be a good decision to honour existing gift cards, as it helps the new owners to create relationships with customers, encouraging them to return to the business. You might want to phase out the existing gift cards and replace them with your own, being clear in your terms and conditions about your plan for outstanding gift cards.

Is there capital gains tax on the sale of a business with outstanding gift certificates?

Yes, there will be capital gains tax on the sale of a business with outstanding gift cards, especially if you have made a profit on the sale of the business. Any money that you have made beyond the initial investment will be liable for capital gains tax, and you will need to pay this tax to the Australian Taxation Office.

However, there are several exceptions that allow you to reduce your capital gains tax. Each of these comes with specific requirements that you must meet to qualify for a lower capital gains tax bill. In some cases, the sale of your business will be tax-exempt. Again, you must meet certain criteria to qualify for a tax exemption on your purchase. It is best to seek financial advice here to ensure that you apply for the right exemptions or reductions for the sale of your business with outstanding gift certificates.

What are the tax implications of selling your business with outstanding gift certificates?

Outstanding gift certificates will need to be included on goods and service tax statements when they are redeemed. This means that the buyer of your business might end up paying tax on these gift certificates, even though they were not sold while they owned the business. The voucher is typically not accounted for on your activity statement until it is redeemed, even though it was paid for at the time of purchase. This is because the goods or services were not purchased until the gift certificate was used. Your buyer might negotiate with you a way to avoid or reduce this, such as by reducing their goods and service tax bills.

You will also need to consider the implications of income tax and capital gains tax when selling your business with outstanding gift certificates. Again, you might be able to qualify for a reduction or exemption, providing that you meet the criteria.

What are the benefits of selling a business with outstanding gift certificates?

Selling a business with outstanding gift certificates has several benefits, including increasing sales, improving cash flow, and brand awareness. We have detailed the main benefits of selling a business with outstanding gift certificates below:

It increases sales

Outstanding gift cards can help increase sales, attracting buyers to your business. Gift cards can draw in new customers as they come to your business to redeem their cards. The experience provided when they arrive with their gift card can determine whether these new customers will return again, increasing your sales. Gift cards can generate sales through holiday seasons and encourage existing customers to return and use their outstanding gift certificates.

It increases brand awareness

Outstanding gift certificates can increase brand awareness, too. These gift cards could be circulating without you needing to do anything to increase the presence of your brand. You can consider them as free marketing, with cards given as gifts attracting new customers or encouraging existing customers to return.

The exposure these gift certificates generate makes buying a business with outstanding gift certificates an enticing option for many buyers, especially if they are looking to reduce the cost of their marketing and brand awareness strategies.

It increases cash flow

When customers choose to buy gift cards from the previous owner, the buyer will see 100% of that sale immediately. The money raised from these purchases is added to the buyer’s cash flow without needing to part with any of their stock.

What legal considerations do I need to make when selling my business with outstanding gift certificates?

You need to ensure that the new owner will honour all outstanding gift certificates. You will want this to be included in your sales contract, and ensure that you disclose the total value of the outstanding gift card so that they can budget for this when taking over the business.

In Australia, it is a legal requirement for buyers of businesses sold as a going concern to honour all outstanding gift certificates before their expiry date. In other situations, you will need to reach an agreement with the buyer that ensures gift cards will be honoured. You will need to consider how you will communicate this information to gift certificate holders, ensuring that you are following the necessary consumer laws.

How to value a business being sold with outstanding gift certificates

The best way to value a business being sold with outstanding gift certificates is to use a business valuer. These experts will have years of experience selling businesses with outstanding gift certificates and can help you get a fair and accurate price for your business.

How do I sell my business with outstanding gift certificates?

To sell your business with outstanding gift certificates, you will need to disclose any outstanding gift certificates and their value to potential buyers. You will need to inform them of the expiry dates on outstanding gift certificates to give them an idea of how long customers have to redeem their values.

When you have a buyer, you will want to include the gift certificates in your sale contract, ensuring that there are clear instructions the buyer must follow to ensure gift certificates are protected.

Get in touch with a business valuation expert near you

Selling a business with outstanding gift certificates provides your buyer with a guaranteed customer base, but you must ensure they follow Australian laws about accepting outstanding gift certificates. To get the best price for your business with outstanding gift certificates, make sure that you get a valuation from one of our experts.

We have business valuation experts across Australia, and you can get in touch with them by following the details below:

• Get in touch with our business valuation experts in Brisbane
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