Which assets should I exclude from an asset purchase?

In an asset purchase, the agreement records which assets the buyer is acquiring. Check that each asset meant to stay behind is named as excluded or left off that list; the exclusion list is something you draft, not something the law supplies. Nothing in the sources used here says which assets to leave out, so this page gives checks rather than a list. The structure itself is covered in should I sell shares or assets.

Check that the business can still run

Under the Excise Tax Act s.167(1), where a supplier supplies a business or part of a business, the supplier and recipient may make a joint election in the prescribed form if the recipient is acquiring all or substantially all of the property that can reasonably be regarded as necessary to be capable of carrying on the business or part of it as a business. The election is not available where the supplier is a registrant and the recipient is not. Where it is made, and filed by a registrant recipient as s.167(1.1) requires, no tax is payable on the supplies under the agreement, subject to the exceptions in that subsection. If you plan to leave assets out, ask your accountant whether what remains still meets that test.

Check what the asset costs to take

Sales tax can change the picture. British Columbia’s Ministry of Finance says PST applies to the taxable goods and software among the assets sold, unless a specific exemption applies, and lists affixed machinery, business equipment, computer hardware, software, furniture and office equipment. It says PST does not apply to accounts receivable, goodwill, inventory goods bought solely for resale, or real property. Other provinces run their own sales tax rules, so price each asset under the rules where you operate.

Pair each exclusion with a liability

The Saskatchewan Workers’ Compensation Board describes a key advantage of an asset sale as the purchaser not being responsible for the seller’s liabilities, yet says the purchaser should obtain a clearance certificate and have it before paying any part of the price or giving security, under s.156(1) of The Workers’ Compensation Act, 2013. That is Saskatchewan’s rule; other provinces run their own boards. Ask the seller to list excluded liabilities alongside excluded assets.

• Is the asset personal to the owner, such as a vehicle or a collection?
• Does a contract or licence need a third party’s consent to move?
• Does a lender hold security over it? See how to check for liens.
• Is it needed to deliver what customers pay for?