Is there a business transfer tax in Canada?

There is no one charge on the transfer itself. Instead, several taxes can attach to the parts of a sale, and which ones apply depends on what is sold, who the parties are and where the assets sit. A seller should know the list before agreeing a price, because some of these taxes fall on the buyer and some on the seller. How a business sale is taxed covers the income tax side in more detail.

Income tax on the sale

The Canada Revenue Agency says that, depending on your situation, you may have a recapture or a terminal loss of capital cost allowance on the sale of your assets. It also says a capital gains deduction may be available if you realized taxable capital gains from qualified farm or fishing property or qualified small business corporation shares. Whether either applies to you is a question for an accountant.

GST/HST and the election

The Canada Revenue Agency says a seller may be able to jointly elect with the purchaser to have no GST/HST payable on the sale, using Form GST44. Under the Excise Tax Act, section 167, the purchaser must be acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary to carry on the business or part as a business. The election cannot be made where the seller is a registrant and the buyer is not. The Agency also lists supplies that still carry GST/HST despite the election, including taxable services to be rendered and taxable sales of real property to a purchaser who is not a registrant.

Provincial taxes differ

In British Columbia, when all or part of the assets of a business are sold, PST applies to the assets that are taxable goods or software. The province says a purchaser who does not obtain a clearance certificate is liable for an amount equal to any outstanding amount owed by the collector. In Ontario, land transfer tax is normally based on the amount paid for the land, plus any mortgage or debt assumed as part of the arrangement to buy the land; in some cases it is based on the land’s fair market value instead. Other provinces may have their own rules, so ask your accountant which apply where your assets are.