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Capital Gain On Sale Of Business Assets

Part IV Tax
December 27, 2021
Income Splitting
Tax on Income Splitting (TOSI) in Canada – 2020
December 29, 2021

It is important to contact the tax office whenever the owner changes into a single owner, a partner in a partnership, or a member of the company’s board of directors. Depending on the structure of your business, changing the owner will have a different impact on your business.

Depending on your partnership agreement and if your business was registered using the official names of each partner or the operating name of a provincially registered partnership, it may change the legal name or require the registration of a new company number (BN ) and the CRA program account.

It is important that companies have the correct name and social security number (SIN) for each director. If you have made taxable capital gains from the management of qualifying agricultural assets or eligible shares of small businesses, you may be eligible to deduct the capital gains.

Deduction of capital gains

Value of inventories and other assets: If you sell your business or part of it, you generally set an amount for the whole business. In some cases, the sales contract establishes the price of each asset, the company’s inventory value, and, if applicable, the amount that can be attributed to goodwill.

Depending on your situation, there may be a recurrence or eventual loss of capital requirement (CCA) on the sale of your assets. You may also have sold eligible capital goods. In this case, you must deduct some of the proceeds from your cumulative qualifying capital account (CEC).

If you are selling your business, you and the buyer can decide not to pay GST / HST at the time of the sale. You can make this choice if the following two conditions are true:

  1. you are selling a business that you have founded or managed
  2. Under the sales contract, the buyer acquires the ownership, possession, or use of at least 90% of the property, which can reasonably be deemed necessary for the buyer to be able to carry on his business.

All assets that were not acquired under the contract but which the buyer needs to do business must be within the remaining 10% fair market value (FMV) of all assets acquired. For example, if real estate, such as land and buildings, is not included in the delivery but is purchased elsewhere, that and any other purchased property must not exceed 10% FMV of all assets required to run the business.

The buyer must also be able to conduct the same type of business that you established or managed with the property that the buyer acquired under the contract.

This option can only be done by:

  1. Registrant for sale to another registrant.
  2. Unregistered for sale to the registrant or an unregistered person.
  3. This option cannot be made if you are only selling one or more assets of your company or if you are a registered person and not a buyer.

You still pay GST / HST for the following deliveries, even if you have chosen with the buyer:

  1. Taxable services to be provided to the buyer.
  2. Taxable transactions in the form of a lease, license, or similar arrangement.
  3. Taxable sale of real estate to a buyer who is not a registered person.

Use the GST44 form, option to acquire a company or part of a company to make this choice. The buyer must send the form to the tax authority no later than the expiration date of his next GST / HST return, where tax would be payable had the choice not been made.

For many entrepreneurs, goodwill is one of the most important assets they need to sell. Developed over the life of the business, it represents the value of your business, often associated with brand recognition, customer reputation, and patents or proprietary technology, whether purchased or developed in-house.

Conclusion

Up until 2017, the company’s sales tax treatment was relatively favorable for Canadian entrepreneurs. Whether through the use of the Lifetime Capital Gains Exemption (LCGE) on the sale of shares and through the use of low rates of corporate income tax on asset sales, the sellers did not have to redistribute a substantial portion of the proceeds from the sale of the Canadian Finance Agency (CRA).

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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