Do unpaid source deductions and HST follow a share purchase?

A share purchase changes who owns the company, not who owes the tax. Source deductions that were withheld from employees and not sent to the CRA, and HST that was collected and not remitted, are debts of the company. The buyer does not sign for them, but the buyer now owns the company that must pay them, so they reduce the value of what was bought.

Why the balances stay with the company

The CRA treats a change of owners of a corporation as an update to its records. The corporation updates the registry, then sends supporting documents to the CRA so the business and owner information match, whereas a new owner of a sole proprietorship must get a new business number. A resident corporation also files a T2 return for every tax year, even when no tax is payable, with a few exceptions such as registered charities. A GST/HST account is closed for reasons such as the registrant selling or closing its business, and a corporation whose shares are bought does neither, so its account stays open.

Why source deductions need the closest look

The Income Tax Act treats amounts withheld from employees as held in trust for the Crown, even against secured creditors, so a lender cannot get ahead of unpaid remittances. It also makes the directors at the time of a failure to remit jointly and severally liable with the corporation for the amount, interest and penalties, subject to conditions and a due-diligence defence set out in the section. A buyer who becomes a director after closing is not automatically liable for an earlier failure, but the unpaid amount remains a debt of the company the buyer now controls.

How to find and price the exposure

Ask the seller for proof that payroll remittances and GST/HST returns are filed and paid, and compare the CRA’s account statements with the books. The CRA’s payroll guidance explains how to correct under-remitted amounts, so a seller may be able to clear arrears before closing. Where an amount is known or uncertain, the agreement can adjust the price, hold part of it back, or give the buyer an indemnity. Checking a business for unpaid taxes lists the searches.