Buying Shares or Assets: What's the Difference When You Buy a Business in Nova Scotia?
This answer covers the law of Nova Scotia.
The main difference is what you are buying: in a share purchase you buy the corporation's shares, while in an asset purchase you buy the business's assets, and the tax results differ. In a share purchase, the cost base of the corporation's own assets does not change, because your cost relates to the shares only. In an asset purchase, you allocate the price among the assets at fair market value, with goodwill getting the balance, and that sets your cost base for each asset.
GST/HST generally does not apply to a share purchase, but an asset purchase can attract it unless an exemption or election applies. A joint election under section 167 of the Excise Tax Act, made on Form GST44, can remove the tax where you acquire all or substantially all of the property needed to carry on the business, which CRA generally treats as 90% or more. It is not available if you buy only one or more individual assets, or when the seller is a registrant and you are not.
Sellers face different tax results too, so get legal and tax advice before choosing a structure.
Key takeaways
- Goodwill is left out of GST/HST calculations even if no section 167 election is made, but GST/HST still applies to a taxable service the seller will provide and to taxable property supplied under a lease or licence, even with a valid election.
- If you are a GST/HST registrant, you file Form GST44 on or before the due date of your GST/HST return for the first reporting period in which tax would otherwise have become payable, unless CRA allows a later date on your application.
- For the seller, an asset sale may produce CCA recapture or a terminal loss, and sellers often prefer a share sale because of the QSBC capital gains deduction, which has a 24-month ownership test and is limited by gains limits.
- In a share deal you file director and officer changes with the Registry of Joint Stock Companies, while in an asset deal your own entity registers its business name and sets up its own CRA accounts, and sole proprietorships and partnerships use the change of proprietor or partner process.