Quick answer: Before you sign, decide whether you are buying assets or shares, check whether the GST44 election applies, agree how the price is split between inventory, equipment and goodwill, and get three years of financial statements, tax filings and the payroll and WorkSafeBC records. Each choice changes the tax you pay later.
Assets or shares
In an asset purchase you buy the equipment, inventory, contracts and goodwill, and leave the seller's company behind. In a share purchase you buy the company itself, with its history, its tax filings and any liabilities inside it. Sellers often prefer a share sale for their own tax reasons; buyers often prefer assets. The choice affects your tax deductions, your exposure to past problems and the price. See business advisory.
GST on the purchase
In an asset purchase, GST can apply to the assets. Where the buyer acquires all or substantially all of the property needed to carry on the business and both parties qualify, the GST44 election lets the sale go ahead without GST being charged. PST can apply to some tangible assets in BC, so ask before you settle the price.
Purchase price allocation
How the price is split between inventory, equipment, buildings, land and goodwill decides how quickly you can deduct it. Equipment is claimed through capital cost allowance over several years; inventory is deducted as it is sold. Agree the allocation in the purchase agreement rather than leaving it for the year-end.
Records to ask for before you sign
- Three years of financial statements and corporate tax returns.
- GST/HST and PST returns, and confirmation the accounts are up to date.
- Payroll records and a WorkSafeBC clearance letter.
- Leases, supplier contracts and customer contracts that transfer with the business.
- A list of equipment with its cost and age.
- In a share purchase, the minute book and any CRA correspondence.
After the purchase
Set up the books from day one with the agreed allocation, register for the accounts you need with the CRA, and decide how you will pay yourself. If you bought shares, switching the company to your own accountant is usually a one-form step.