New rules for purchase price allocations (PPAs) have been in place since July 2021.
A key target for the rules is commercial property transactions and purchasers who are unaware of the requirements may be missing valuable opportunities, and exposing themselves to tax risk. In addition to purchasers, vendors also need to be well aware of the rules, as the PPA can have a significant impact on cash tax liabilities resulting from transactions.
In this paper, we summarise the key trends we have observed since the new rules were introduced, and discuss opportunities as well as risk mitigation for both purchasers and vendors. As the new PPA rules continue to become embedded in market practice, the importance of seeking appropriate expert advice early in a transaction should not be underestimated.
How we can help
There is a lot to think about when entering into a transaction for commercial property, and the PPA may not be at the top of the list. The right approach to take in relation to agreeing (or not agreeing) a PPA will vary in different situations. Taking advantage of PwC’s integrated Real Estate service offering can help you mitigate risk and maximise opportunities for value, and move the work from your desk to ours.
Our experts can provide an independent PPA assessment. Our tax advisers and lawyers can help you determine the best strategy for working with the PPA rules and negotiations. Please contact your usual PwC advisor, who can link you in with our team. In a market of rising asset values, purchasers are also most at risk of missing a valuable opportunity to maximise future tax outcomes. Agreeing a PPA based on a vendor’s tax written down values (which is very common practice), or agreeing broad categories of allocation to building and/or fit out without expert assistance (particularly between building and fit out), limits the timing and extent of the depreciation deductions a purchaser can claim during the subsequent period of ownership.
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