17. Deal With Tax Risks Upfront

Bright line, GST and other exposures identified and explained before buyers find them

Problem Statement

Many owners assume tax risk is something to worry about only if IRD comes knocking. As long as returns are filed more or less on time and no scary letters arrive, life goes on. Then a buyer’s adviser starts due diligence. Suddenly bright line questions appear about past property deals, GST treatment on land looks fuzzy, historic adjustments are unclear and everyone wants to know whether there are any skeletons in the filing cabinet.

At that point you are explaining under pressure, not on your own terms. Buyers respond with price chips, retentions, long warranties or nervous silence. A deal that should feel like reward for years of work starts to feel like an audit.

What An Owner Might Say

“We have always paid our tax. I just do not know whether everything has been done in the exact way a buyer’s tax adviser will want.”

“We bought and sold a couple of properties through the business. The accountant handled it. I am not totally sure how bright line was treated.”

“We claim GST where we can, keep receipts in a box and hope the software does the rest. I would hate a buyer to find something we have missed.”

Why It Happens

Tax risk often builds one decision at a time. A property purchase goes through the trading company because it feels quicker. A vehicle is used privately more than planned. A staff benefit gets added as a once off. GST on a mixed use asset is claimed in full because it seems easier. Each choice feels minor on the day. Over a decade the pattern can become messy.

Owners lean heavily on advisers, which is usually sensible. The catch is that you may not fully understand which positions were cautious and which were more assertive. Annual conversations focus on last year’s bill rather than long term exposure. Once the return is filed, everyone moves on.

Rules change. Bright line tests expand. GST treatment on land evolves. Guidance about what IRD sees as acceptable shifts over time. Few SMEs get a full tax health check every few years. Instead they have a pile of historic decisions that have never been reviewed through an exit lens.

There is also a natural tendency to hope that if IRD has not called yet, everything must be fine. That might be true. It might also just mean you have not been on a review list. A buyer will not take comfort from silence. They assume there are unknowns until you prove otherwise.

What To Do About It

Treat tax risk as something to map, not something to fear. Start with a short, honest conversation with your accountant about your exit horizon. Let them know you want to identify and quantify any obvious exposures before buyers do. That shifts their brief from annual reporter to forward looking adviser.

Ask for a simple tax risk register, written in plain English. It might have headings for income tax, bright line, GST, PAYE, FBT and anything industry specific. Under each heading, record known issues, likely exposure if IRD challenged a position, the quality of your support and options for fixing or mitigating. You are looking for clarity, not perfection.

Look carefully at property related transactions. Any land or buildings bought or sold in recent years deserve a second look, especially anything that might touch bright line or GST on land. Check the intent at purchase, the use in practice, how gains were returned, whether zero rating was used and whether that all lines up with documents. Where something feels grey, get specific advice now rather than during due diligence.

Review GST with a buyer’s eyes. Confirm that your registration makes sense, that business use percentages for mixed assets are realistic, that major one off transactions such as asset sales or restructuring were treated correctly. Pay attention to areas where IRD often focuses such as property, entertainment, vehicles and international services. Clean, well supported GST positions lower buyer anxiety.

Run a quick sanity check over PAYE and FBT. Make sure payroll matches contracts, that benefits such as vehicles, allowances, accommodation and gifts have been considered properly. If you know payroll has been tidied recently, document what changed and why. Buyers like seeing that you have already strengthened weak spots.

Decide what to fix, what to disclose and what to monitor. Some issues can be corrected quietly by voluntary adjustment or future behaviour changes. Others may be better handled through formal disclosure to IRD so you can show buyers that risk has been addressed. In a few areas you might accept a small theoretical exposure that is unlikely to be raised, then explain it clearly. In my view this sort of open, reasoned approach builds far more trust than blanket denials.

How To Keep The Momentum

Once the first sweep is done, keep the tax risk register alive. Update it at least annually as part of planning. Note any new property deals, major contracts, restructures or changes in law that might matter. When you are closer to sale, buyers will see a history of active management, not a last minute scramble.

Fold tax risk into board or leadership discussions in a practical way. You do not need a technical lecture. You do need ten minutes where your adviser explains in normal language which areas are stable and which deserve attention. This normalises the idea that tax is one more business risk to manage, not a mysterious force outside your control.

Align documentation with the story. Where you have cleaned up historic issues, keep copies of advice, voluntary disclosures, correspondence and calculations in one tidy folder. When a buyer asks how you dealt with a matter, you can show the paper trail rather than relying on memory. That shortens due diligence and reduces the temptation for them to demand heavy warranties.

Be thoughtful about new transactions as exit approaches. Before signing a property deal, major lease, restructuring step or unusual contract, ask your adviser how it will look in a data room. A small amount of planning now can avoid an awkward note on the risk register later.

Golden Nugget

“Tax risk is far less scary when the worst surprises are already your own, not the buyer’s.”

How RegenerationHQ can help

RegenerationHQ does not replace your tax specialist. In my view the best results come when you, your accountant and a commercial adviser sit on the same side of the table.

What RegenerationHQ does is help you see tax risk through a buyer’s lens, then turn technical findings into a practical action list. That may include shaping a clear tax risk register, prioritising which issues to tackle first, coordinating with your accountant on voluntary fixes and weaving the outcomes into your wider exit story so buyers see evidence of mature stewardship rather than buried headaches.

With that groundwork complete, you can head into negotiations knowing bright line questions, GST exposures and other tax wrinkles have been identified, explained and either resolved or sensibly contained. Buyers feel safer, you keep more control over the narrative and the sale is far less likely to be derailed by a surprise that could have been spotted years earlier.

If you want a steady guide beside you while you get ready for one of the biggest decisions of your working life, RegenerationHQ is ready to help you walk that road with clarity and confidence.