Asset Purchase vs Share Purchase of a Saskatchewan Business

When you buy a business in Saskatchewan, one early question shapes almost everything else: are you buying the company's assets, or the shares of the company that owns them? The answer affects your taxes, the paperwork, what you take on from the past and how employees and contracts move over.

This article explains the main differences in plain terms. It is general information, not advice for your deal. Which structure works best depends on the facts, so it is worth confirming with a lawyer and an accountant before you commit.

This article covers the law of Saskatchewan.

The basic difference

In an asset purchase, you choose what you are buying: equipment, inventory, customer lists, the name, the lease and goodwill. You buy those items from the seller, whether the seller is a person or a corporation.

In a share purchase, you buy ownership of the corporation itself rather than its individual assets. The tax values of the corporation's assets do not change, and you inherit its existing tax cost base and history. What else sits inside the company, such as contracts, debts or possible claims, depends on the facts and is worth confirming with a lawyer. This only works if the business is run through a corporation. A sole proprietorship or partnership has no shares to buy.

How tax treatment differs

In an asset purchase, the buyer allocates the price to each asset at fair market value, then to inventory, with the balance going to goodwill. Fixed assets go into capital cost allowance classes and goodwill goes into Class 14.1. In a share purchase, the tax values of the corporation's assets do not change, and you inherit its existing tax cost base and history.

Because the seller may benefit from a share sale and the buyer may benefit from an asset sale, price and structure are often negotiated together. Your accountant can model both.

GST/HST and PST on an asset sale

Buyer and seller may jointly elect under section 167(1) of the Excise Tax Act so that no GST/HST is payable on the sale. The seller must be supplying a business or part of a business, and the buyer must acquire all or substantially all of the property reasonably necessary to carry on that business. The CRA generally treats that as 90% or more of the property needed.

• The election is made on Form GST44, and a registrant buyer must file it by the due date of its GST/HST return for the first reporting period in which tax would otherwise have become payable.
• It is unavailable if the seller is a GST/HST registrant and the buyer is not.
• It does not apply to a sale of only one or more individual assets.
• GST/HST can still apply to items such as taxable services the seller will render, taxable leases or licences, and real property sold to a non-registrant.

Saskatchewan PST is separate. PST is payable on both new and used business assets, and if the seller did not collect it, the buyer must calculate it and remit it to the Ministry of Finance. For assets bought to start operations in Saskatchewan, the buyer files the Business Assets Declaration within 30 days of the purchase date, with a copy of the agreement and supporting schedules or invoices. If the business has already started operating, PST due is reported on the Net Tax on Consumption line of the regular PST return instead.

Liens, employees and other practical points

In an asset purchase, you can search the Saskatchewan Personal Property Registry by debtor name or by serial number of goods to find registered security interests on the seller's equipment or inventory. Under the Personal Property Security Act, 1993, a buyer taking goods may take them subject to a registered security interest, so the buyer should require discharges or payout from the price at closing.

Employees are protected either way. Where a business is sold, leased or transferred and an employee keeps working there, the employee's service is maintained for notice purposes, whether the deal is an asset or share sale. Notice is owed only to employees employed for more than 13 consecutive weeks.

Other points depend on the structure. A share buyer inherits the corporation's existing tax cost base and history, and what else sits inside the company, such as contracts, debts or possible claims, is worth reviewing carefully with a lawyer. An asset buyer of an unincorporated business should confirm the seller's business name registration and plan for its own. Contracts and leases may need the other party's consent to move, which depends on their wording.

What to do next

• Ask the seller whether the business is run through a corporation or is a sole proprietorship or partnership.
• Have your accountant compare the tax results of both structures at the proposed price.
• Check whether the GST/HST election could apply and, if you are a registrant buyer, file Form GST44 by the due date of your GST/HST return for the first reporting period in which tax would otherwise have become payable.
• Search the Saskatchewan Personal Property Registry for liens before you agree to a price.
• Report ownership changes to the CRA and ask whether you need a new business number.
• Have a lawyer review the agreement, leases and employee terms before you sign.

Frequently asked questions