Can I amortize goodwill after buying a business in Canada?

You cannot write goodwill off in one go after buying a business, but its cost can be deducted gradually for tax. Canada Revenue Agency (CRA) lists goodwill as depreciable property in Class 14.1, so the deduction is called capital cost allowance (CCA). This page covers the tax side only; how goodwill appears in financial statements is a separate question for your accountant.

What CCA is

CRA says you cannot deduct the full cost of depreciable property when you calculate net business or professional income for the year you acquired it. Instead, CRA says, you deduct the cost over a period of several years; this yearly deduction is CCA, at the rate for the property’s class. CRA’s page on claiming CCA explains the method, including the declining-balance method, and the classes of depreciable property.

Where goodwill fits: Class 14.1

CRA says that starting January 1, 2017, Class 14.1 includes property that is goodwill. For Class 14.1 property acquired after 2016, CRA says CCA is claimed on a declining-balance basis and the existing CCA rules will normally apply; the Income Tax Regulations set the rate for the class. For tax years that end before 2027, CRA says Class 14.1 property acquired before January 1, 2017 is depreciable at a different rate, and that transitional rules apply.

How the Income Tax Act treats goodwill

The Income Tax Act, in section 13(34), deems a single goodwill property for a particular business. If a taxpayer acquires goodwill as part of an acquisition of all or part of another business that is carried on afterward as part of the particular business, the cost is added to the cost of that goodwill property. Subsection (35) also deems some acquisitions of goodwill. Ask your accountant how the deal structure and the purchase price allocation affect what is added.

What to settle before closing

Ask your accountant and lawyer how the agreement will allocate the price, and whether any amount will be treated as goodwill. For how a buyer thinks about goodwill’s worth, see How do I evaluate goodwill when buying a small business?, and for the term itself, goodwill.