Can a buyer be liable for the seller's unpaid taxes after an asset purchase in BC?
This answer covers the law of British Columbia.
Yes, in some cases. For PST, a buyer who does not get a clearance certificate before buying a business is liable for an amount equal to any outstanding amount the seller owes. This applies to bulk transactions too.
A bulk transaction includes buying substantially all (more than 90%) of the seller's inventory in B.C., substantially all goods or software used in its B.C. business, or an interest in that business. You apply for clearance online or on Application for Clearance (FIN 447), with the seller's consent. Other risks differ: if the seller is a non-resident, you may have to remit 25% of the amount by which the cost of taxable Canadian property exceeds the certificate limit (zero with no certificate) within 30 days after the end of the month of acquisition, unless an exception applies. Whether GST or payroll debts can follow the assets depends on the facts, so confirm with a lawyer or accountant.
The PST rules point to a clearance certificate as the way to protect yourself. How to draft the purchase agreement depends on your deal, so it is worth confirming with a lawyer. In a share purchase, you take the company with its history and liabilities.
Key takeaways
- Without a PST clearance certificate, a buyer is liable for an amount equal to any outstanding amount the seller owes, including on bulk transactions.
- You apply for PST clearance online or by Application for Clearance (FIN 447), with the seller's consent.
- Buying taxable Canadian property from a non-resident seller can trigger a 25% remittance on the cost above the certificate limit, unless an exception applies.
- In a share purchase you take the company with its history and liabilities, while in an asset purchase employees who stay generally carry their past service over to you, unless the seller ended their employment before the sale or a trustee in bankruptcy sold the business.