Selling a septic services company in Canada

An owner who has decided to sell has a sequence to follow. Expect to be asked whether the regulatory standing is current, the customer route is documented, the equipment has a maintenance history and the books support the earnings you claim. Then there is the paperwork after a deal is agreed: tax accounts, ownership changes and the question of what happens to approvals tied to you. This guide sets out the order.

Gather the regulatory file first

Start with whatever lets the company haul, dispose of and install, and write down who holds each item. In Ontario, the Ministry of the Environment, Conservation and Parks says section 27 of the Environmental Protection Act requires an Environmental Compliance Approval for the transportation, management or disposal of certain types of waste, and its page describes how to amend or renew an approval. If your approvals are tied to you or to the company, ask the issuing office what a change of owner requires before you promise anything to a buyer. Installer registration is dealt with by the body that grants it where you work, so ask that body the same question.

Document the route and the equipment

Be ready to say exactly what is being sold. Build a customer list with service history, a schedule of installations with dates and permits, and a file for each truck and excavation machine showing maintenance and repairs. Keep proper records, since the CRA’s guidance lists accounting and other financial documents as records and points to separate rules on how long to keep them. Look for gaps in manifests or inspection records yourself first. If something is missing, write down what happened and what you did to fix it, so you can explain it before a buyer finds it. Also gather the paperwork on any equipment loans or leases, because a buyer can fairly ask what is owed on each unit and who holds security over it.

Confidentiality

Ask a lawyer to prepare a confidentiality agreement before sharing customer-level detail, and release route information in stages, starting with summaries and moving to named accounts only for a serious party. Decide in advance who on your staff must be told, and when, since drivers and office staff may hold much of what a buyer wants to know. Keep one person responsible for answering buyer questions so the story stays consistent. See selling a business in Ontario for how the wider process runs in that province.

CRA steps after the sale

The CRA states that if the business you are selling has a business number, contact your tax services office, because you might have to cancel it. If it has employees, you must close the payroll account, and if it has a GST/HST account, you must contact the tax services office to close it. The CRA also states that a change of owner may require registering a new business number and new program accounts, and that a new owner can’t continue using the old business number. Plan these steps with your accountant so that nothing is closed before the buyer’s accounts are ready. If you sell by transferring shares rather than assets, the company itself stays, so ask your accountant which of these steps apply to your structure, and see the CRA’s page on changes of owners, partners or directors.

The GST/HST election

The CRA says you may be able to elect jointly with the purchaser so that no GST/HST is payable on the sale, if you are selling the business that you established or carried on and, under the agreement for the sale, the purchaser acquires ownership, possession or use of the share the CRA specifies of the property that can reasonably be regarded as necessary for the purchaser to be capable of carrying on the business as a business. The purchaser also has to be capable of carrying on the same kind of business with the property it acquires. The CRA adds that you may also be eligible if you are selling part of your business, that the election cannot be made if you sell only one or more assets of your business or if you are a registrant and the purchaser is not, and that you still charge GST/HST on some supplies even with the election. The form is GST44, and the CRA says the purchaser files it no later than the due date of its next GST/HST return in which tax would have been payable without the election. Whether a deal qualifies is a question for your accountant.

Tax on the assets

If the deal sells assets, the CRA notes that, depending on your situation, you may have a recapture or a terminal loss of capital cost allowance. For a company with trucks and machinery, this can matter to what you keep after tax, so ask your accountant to model it before you accept an offer. The CRA also says that as of January 1, 2017 the eligible capital property system was replaced with capital cost allowance Class 14.1 with transitional rules, and your accountant can say whether that is relevant if part of the price is for goodwill. Ask how the price is allocated between equipment and goodwill, because the allocation can affect the tax result, and the buyer may see it differently.

What to expect buyers to request

Be ready for questions about approvals and their conditions, a list of equipment with maintenance and loan status, customer and route data, installation files, disposal records, financial statements with support, and any complaint or claim history. Prepare a short written summary of each so that your answers match. If a buyer needs its own approvals before it can operate, be ready to help the buyer through those steps. Ask your lawyer which of your promises should be written into the agreement and which should stay out.

• Approvals, registrations and any amendments a change of owner would require
• Customer list with service dates, plus an installation schedule with permits
• Maintenance file for each truck and excavation unit
• Books and supporting records that match the earnings you present
• A list of CRA accounts to close or change, and the order in which to do it