Sale of a Business

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If you sell a business or part of a business, you and the purchaser can make a joint election not to have the GST and the QST apply to the sale. The following conditions must be met:

  • You are selling a business or part of a business that you established or carried on, or that you acquired after another person established it or carried it on.
  • One of the following situations applies to you and the purchaser:
    • You are both registrants.
    • You are a non-registrant and the purchaser is a registrant.
    • You are both non-registrants.
  • Through the transaction, the purchaser acquires all or substantially all (90% or more) of the property that may reasonably be considered necessary to carry on the business.

To make the election, you and the purchaser must complete form FP-2044-V, Election Respecting the Acquisition of a Business or Part of a Business, and send it to us.

Are you selling a business or part of a business?

For GST and QST purposes, a business includes a trade, manufacture or professional practice. The assets of a business generally include real property, equipment, inventory and intangible property such as goodwill. As a rule, the sale of one or more individual assets is not considered to constitute a sale of a business or part of a business, even if the asset in question has a high monetary value and is indispensable to the operation or establishment of the business.

A part of a business is generally an activity that may be carried on by a functionally and physically distinct administrative unit. A part of a business may also be an activity which supports or is related to the broader business, but is organized as a separate activity capable of operating on its own.

Example
A cake and cookie manufacturer, in business for more than ten years, decides to specialize in cakes exclusively. Its cookie-making facilities (production line, inventory, equipment and intangible property) are put up for sale. In this case, it may be said that a part of a business is being sold.

Is the purchaser acquiring all or substantially all of the property?

In order for the election regarding the sale of the business to be made, property that the purchaser requires to carry on the business but that is not acquired under the sales agreement (for example, property acquired from another source or already in the purchaser's possession) must not exceed 10% of the fair market value of all the property required to carry on the business.

In addition, the purchaser must be capable of carrying on the same kind of business that was established or carried on by the vendor using the property acquired under the sales agreement.

Once the vendor and the purchaser have jointly elected not to apply the GST and QST, the vendor is not required to collect those taxes and the purchaser is not required to pay them. However, this is not the case where:

  • taxable services are rendered to the purchaser;
  • taxable property is supplied by lease, licence or similar agreement; or
  • taxable real property is sold to a non-registrant.

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