As Benjamin Franklin said, “nothing is certain except death and taxes.” The government will want a piece of every transaction you do – that’s just the nature of the government and of taxes! The trick is to minimize overall taxes by structuring the transaction correctly, and by making sure you know what the current tax situation of the business you are looking at.
Specific questions you need to ask during due diligence are:
- Are CPP, EI, GST/HST, and Income Tax payments current?
- What were the dates and the outcome of the last audit?
In terms of structuring, there are two basic ways to structure the purchase of an existing (incorporated) business: as an asset purchase or a share purchase.
If an asset purchase you (or a new corporation you set up) are buying all of the assets of the old corporation, including the “goodwill” aspects (name, client lists, etc.). In this situation, you may have to pay provincial retail sales tax (PST) on the tangible assets you are buying (just like buying a used car) but not GST/HST (if you sign an election with the vendor).
If a share purchase you can save the above tax BUT – and it is a big BUT – you will inherit all past tax liabilities (known and unknown) of the corporation. Consult with your advisors for details.
Need more information? Call us at 204-478-7266, ext. 110. or click https://www.bealbusinessbrokers.ca/buying-a-business/ to download our free e-book on buying a business.