- In an asset purchase you set the cost base for each asset by allocating the price, while in a share purchase your cost relates to the shares only.
- Shares are generally not subject to GST/HST, but an asset purchase can be unless an exemption or election applies.
- Sellers often prefer a share sale because of the capital gains deduction, so the structure is usually a negotiation.
When you buy a business you are choosing between two basic routes: buy the assets the business uses, or buy the shares of the company that owns them. The price may look the same either way, but the tax, risk and paperwork differ.
This article compares the two routes for a Nova Scotia purchase so you can talk through the choice with your lawyer and accountant.
This article covers the law of Nova Scotia.
The basic difference
In an asset purchase, your own entity buys chosen items such as equipment, inventory and goodwill from the seller. In a share purchase, you buy the ownership of the company itself, and the company stays the same legal entity.
In general terms, the two routes treat cost differently: in an asset purchase you allocate the price among the assets you acquire, while in a share purchase the corporation's own assets keep their cost base and your cost relates to the shares. How the risks and liabilities differ depends on the agreement and the facts, so it is worth confirming with a lawyer.
Side-by-side comparison
| Issue | Asset purchase | Share purchase |
|---|---|---|
| Cost base | Price is allocated among the assets, generally at fair market value, with goodwill the balance | Corporation's own asset cost base does not change; your cost relates to the shares |
| GST/HST | Can apply unless an exemption or election applies | Generally not subject to GST/HST |
| Registry paperwork | Your entity registers its business name and sets up its own CRA accounts | Director and officer changes are filed with the Registry of Joint Stock Companies |
| Seller's tax | Possible recapture or terminal loss on depreciable assets; no capital gains deduction at the corporate level | Capital gains deduction may be available on qualified small business corporation shares |
Tax points for the buyer and seller
In an asset sale the allocation of the price has tax effects for both sides, because the seller may have recapture or a terminal loss of capital cost allowance on depreciable assets. Inventory bought as part of a business is treated by CRA as goods for resale and included in cost of goods sold.
Sellers often prefer a share sale, because a capital gains deduction may be available on qualified small business corporation shares. The shares must not have been owned by anyone other than the seller or a related person throughout the 24 months before the determination time, and must meet asset tests. The deduction is also limited by a formula, so not every gain is sheltered. Whether a seller qualifies is a question for their accountant.
GST/HST on an asset purchase
If you buy assets, GST/HST can be a real cost. A buyer and seller may jointly elect on Form GST44 so no GST/HST is payable, but only where the buyer acquires all or substantially all of the property needed to carry on the business. CRA generally treats that as 90% or more.
- A registrant buyer must file the form by the due date of its return for the first reporting period in which tax would otherwise be payable, though CRA may allow a later date.
- The election cannot be used if the seller is a registrant and the buyer is not.
- Buying only one or more individual assets is generally not a sale of a business.
- GST/HST can still apply to some services, leases or licences, and to taxable real property sales where the buyer is not a registrant.
- Goodwill is not included in GST/HST calculations, even without the election.
Contracts, employees and what to do next
Leases, supplier contracts and employment arrangements are often the hardest part. In a share purchase the company stays the same legal entity, while in an asset purchase your own entity is the buyer. The rules on employees and assigning contracts under Nova Scotia law depend on the facts, so confirm them with a lawyer.
- Ask your accountant to model the tax result of each structure for you and the seller.
- Search the Personal Property Registry using the seller's accurate legal names.
- List every contract and lease and check whether consent is needed.
- Plan post-closing filings, including CRA accounts and any new business number.
- If buying from a relative, ask about joint liability for the seller's tax debts.
Frequently asked questions
Which is better for a buyer, assets or shares?
It depends on the business, its history and the tax position of both sides. Buyers often value choosing what they take on, while sellers often prefer selling shares. Your lawyer and accountant can compare them for your deal.
Do I pay GST/HST if I buy shares?
Generally the purchase of shares of a corporation is not subject to GST/HST. Asset purchases can attract it unless an exemption or election applies.
What is the GST44 election?
It is a joint election under Excise Tax Act s. 167(1) so no GST/HST is payable on the sale of a business or part of one, where the buyer acquires all or substantially all of the property needed to carry it on. It has conditions and a filing deadline.
What paperwork changes between the two structures?
On a share purchase the company stays the same, so director and officer changes are filed with the Registry of Joint Stock Companies. On an asset purchase your entity registers its business name and sets up its own CRA accounts.
Sources
- CRA – Buying a business — canada.ca
- Excise Tax Act s. 167 — Justice Laws (federal)
- CRA GST/HST Memorandum 14-4 – Sale of a Business or Part of a Business — canada.ca
- CRA – Selling a business — canada.ca
- Income Tax Act s. 110.6 — Justice Laws (federal)
- Income Tax Act s. 160 — Justice Laws (federal)
- Excise Tax Act s. 325 — Justice Laws (federal)
- Nova Scotia – Search the Personal Property Registry — novascotia.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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