What is on the closing checklist for an asset purchase of a business?

A closing checklist for an asset purchase can include items that exist because the buyer is acquiring assets rather than shares. The sources checked for this page support three of them: the federal GST/HST election for the sale of a business, a search for security interests registered against the seller, and the bulk sale clearance rule in Manitoba. Deavo’s closing day checklist covers the general steps. This page covers only those three.

The GST/HST election

Under section 167(1) of the federal Excise Tax Act, where the recipient of a supply of a business or part of a business is acquiring all or substantially all of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business, the supplier and the recipient may make a joint election in prescribed form so that subsection 167(1.1) applies. The election is not available where the supplier is a registrant and the recipient is not. If the recipient is a registrant, subsection 167(1.1) requires it to file the election with the Minister by the due date of the return for its first reporting period in which tax would otherwise have become payable, or a later day the Minister allows on application. Even with the election, subsection 167(1.1) leaves tax payable on a taxable supply of a service to be rendered by the supplier, a taxable supply of property by lease, licence or similar arrangement, and, where the recipient is not a registrant, a taxable sale of real property. CRA says form GST44 is the form used to elect not to have GST/HST apply to the sale of a business or part of one. Ask a lawyer or accountant whether the election fits your deal.

A search for the seller’s security interests

A lender or other creditor may have registered security against the seller’s business assets, so ask your lawyer to schedule a registry search of the seller before closing. British Columbia and Ontario each have a Personal Property Security Act, and the tools differ. In British Columbia, section 50(3) of the Act allows the debtor, or any person with an interest in property that falls within the collateral description on the financing statement, to give the secured party a written demand to amend or discharge the registration in the cases it lists, such as where all of the obligations under the security agreement have been performed or the secured party has agreed to release part or all of the collateral. In Ontario, section 56(1) of the Act lets any person having an interest in the collateral demand in writing that the secured party register a discharge or partial discharge once all the obligations under the security agreement have been performed, or once the obligations on which part of the collateral was agreed to be released have been paid or performed. This page does not cover other provinces, so ask your lawyer which search and discharge process applies where the assets are.

Bulk sales: Ontario and Manitoba

Ontario’s Bulk Sales Act was repealed on March 22, 2017, so an Ontario asset purchase has no Bulk Sales Act step. Manitoba is different. Manitoba Finance’s bulletin on bulk sales under The Tax Administration and Miscellaneous Taxes Act describes a bulk sale as a sale of business assets in connection with the seller ceasing to carry on business in Manitoba, and says a sale of shares or partnership interests is not one. The bulletin says a buyer of assets in a bulk sale who fails to obtain a copy of the seller’s Bulk Sale Clearance Certificate can be held liable for the seller’s tax debts with Manitoba’s Taxation Division up to the date of the bulk sale, and that it is in the buyer’s interest not to release the final sale proceeds until the certificate is in hand. The sources used here do not cover other provinces. Ask your lawyer which provincial clearances apply to your purchase.