What fees apply when I sell my franchise in Canada?

Selling a franchise can carry one cost that an independent business does not: the franchisor’s charge for processing the transfer. Other costs, such as professional fees and tax, are not specific to franchises. This page covers the cost of selling a franchise in Canada, starting with the fee your franchise agreement controls. For a general view of sale costs, see what it costs to sell a business.

The franchisor’s transfer fee

Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 exempts a grant of a franchise by a franchisee from the franchisor’s disclosure duty if listed conditions are met, one being that the grant is not effected by or through the franchisor. A grant is not effected by or through the franchisor merely because a transfer fee must be paid to the franchisor in an amount set out in the franchise agreement, or in an amount that does not exceed the reasonable actual costs the franchisor incurred to process the grant. Alberta’s Franchises Act has a matching provision for a sale by a franchisee. Neither provision sets the fee itself. Read your agreement for the fee, and ask the franchisor what it covers.

Approval is separate from the fee

The same Ontario provision says a grant is also not effected by or through the franchisor merely because the franchisor has a right, exercisable on reasonable grounds, to approve or disapprove it. Alberta’s refers to a reasonable right to approve or disapprove the sale. If the franchisor must approve your buyer, ask whether the transfer fee is due when an application is made, when approval is given or only on closing, and whether any of it comes back if the buyer is refused. Your agreement is where those answers should sit.

How selling costs count for tax

Under the Income Tax Act, except as otherwise expressly provided, a gain on disposing of property is the amount by which the proceeds of disposition exceed the total of its adjusted cost base and any outlays and expenses made or incurred for the purpose of making the disposition. The Canada Revenue Agency also 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. Whether a particular fee counts as a selling expense is a question for your accountant.

Costs to ask about before you list

• Your lawyer’s and accountant’s fees, and how they are charged.
• A broker’s fee, if you use one, and when it is payable.
• Whether the franchise agreement lists any other charge on a transfer.
• Any amount you owe the franchisor that must be settled before closing.