Are business brokerage fees tax deductible in Canada?

If you pay a business broker to sell your business, the fee is not simply a line you deduct against your other income. The Canada Revenue Agency (CRA) treats a broker’s fee on the sale of a capital property as an outlay or expense of the sale, and it works through the gain instead. What that means for you depends on what you actually sold: shares, equipment, goodwill and inventory are not all treated the same way. This page covers the general federal rule only.

Where a broker’s fee goes

The CRA’s guide to capital gains lists commissions, brokers’ fees, finders’ fees, legal fees and advertising costs among the expenses of selling a capital property. It says you can deduct outlays and expenses from your proceeds of disposition when calculating your capital gain or loss. It also says you cannot reduce your other income by claiming a deduction for them. The Income Tax Act builds the same idea into the gain: the amount by which the proceeds of disposition exceed the total of the adjusted cost base and any outlays and expenses, to the extent they were made or incurred for the purpose of making the disposition.

Where the rule stops

The CRA’s rule is about capital property. The same guide says capital property does not include the trading assets of a business, such as inventory. So if part of your price is for inventory, do not assume the same treatment for the part of the fee that relates to it, and ask your accountant how the fee is split. The Act also ties the deduction to costs incurred for the purpose of making the sale, so ongoing operating costs are a separate question.

The sales agreement matters

The CRA’s page on selling a business notes that a sales agreement sometimes sets a price for each asset, a value for the inventory and, if applicable, an amount attributed to goodwill. That split affects how each part of the sale is treated, so ask your accountant whether it also affects how the broker’s fee and your legal fees are allocated. Agree the allocation before you sign rather than after, and keep the broker’s invoice and your lawyer’s account.

Questions for your accountant

• Is each thing I am selling capital property, inventory or something else?
• How will the broker’s fee be allocated across those assets?
• Which invoices count as costs of making the sale?
• Does the sales agreement’s price split change any of this?

For the wider picture of how the sale itself is taxed, see How is a business sale taxed in Canada?.