- PST applies to taxable assets such as affixed machinery, equipment, computer hardware and supplies in an asset purchase, but not to the sale of shares of a business.
- In an asset purchase, GST is payable unless the buyer and seller jointly file the s. 167 election, which depends on the buyer acquiring all or substantially all the property needed to carry on the business.
- If land comes with the business, the buyer pays property transfer tax at 1%, 2% and 3% on rising portions of fair market value.
When you buy a business in British Columbia, the structure you choose changes which taxes land on your side of the table. In an asset purchase you buy the equipment, inventory, goodwill and other pieces of the business. In a share purchase you buy the company that owns them. The headline price can be identical while the tax bill is very different.
This article compares the sales and transfer taxes a buyer should expect under each structure. It focuses on PST, GST and property transfer tax. It does not cover the seller's income tax. Your own numbers depend on what is being sold, so treat this as a map for the conversation with your lawyer and accountant.
This article covers the law of British Columbia.
Why the structure matters to a buyer
In an asset purchase, each category of asset is treated on its own for tax purposes. Some categories attract PST, some may attract GST, and land may attract property transfer tax. In a share purchase, the company stays the same and you are buying ownership of it, so the tax questions look quite different.
The table below gives a quick comparison. Where the answer depends on the facts of your deal, it says so rather than guessing.
| Tax | Asset purchase | Share purchase |
|---|---|---|
| PST | Applies to taxable assets such as affixed machinery, equipment, computer hardware and supplies | Does not apply to the sale of shares of a business |
| GST | Payable unless the s. 167 election is filed | Depends on the deal; confirm with an accountant |
| Property transfer tax | Applies to land that is transferred, at the rates in the section below | Depends on what is transferred; confirm with your lawyer |
PST: the clearest difference
In an asset purchase, PST applies to taxable assets such as affixed machinery, equipment, computer hardware and supplies. It does not apply to goodwill, inventory, accounts receivable or real property. How the purchase price is divided among these categories therefore affects the PST you pay.
In a share purchase, PST does not apply to the sale of shares of a business. That is a real saving compared with an asset deal that includes a lot of equipment.
There is a catch on the other side of PST. A buyer in a bulk asset transaction should obtain a PST clearance certificate, and a buyer who does not is liable for an amount equal to any outstanding amount owed by the collector. The certificate confirms that PST, penalties and interest are paid up to the issue date, and it is requested with the collector's consent. This is covered in more detail in our dedicated article on PST clearance certificates.
GST in an asset purchase
GST is the other tax to plan for in an asset deal. Where the buyer acquires all or substantially all the property needed to carry on the business, the seller and a registrant buyer may jointly file a prescribed election so that no GST is payable on supplies under the agreement. The buyer files it by the due date of its GST return for the first reporting period in which tax would otherwise be payable.
The election has limits. It is not available where the seller is a registrant and the buyer is not. Tax still applies to a taxable supply of a service by the seller and to taxable supplies of property by lease or licence. Where the buyer is not a registrant, a taxable sale of real property is also still taxed. Our dedicated article on the s. 167 election explains the steps.
Property transfer tax when land is included
If your purchase includes the building or land the business operates from, property transfer tax comes into play. The buyer pays 1% on the first $200,000 of fair market value, 2% from over $200,000 to $2,000,000, and 3% above $2,000,000. The calculation is based on fair market value on the day of registration at the Land Title Office. Commercial property is taxed at the general rates.
The further 2% tax on residential value above $3,000,000 applies only to residential property, and for mixed-use property only to the residential portion. Foreign nationals, foreign corporations and taxable trustees may owe additional tax on residential property in specified areas. Whether transfer tax applies in a share purchase depends on what is actually being transferred, so ask your lawyer to confirm for your deal.
Related-party deals and other cautions
If you are buying from a family member or another person you do not deal with at arm's length, there is an additional risk. Where property is transferred to a spouse or common-law partner, a person under 18, or a person not dealing at arm's length, the transferee and transferor are jointly and severally liable for the transferor's tax, up to the excess of the property's fair market value over the consideration paid.
There are special rules for property transferred to a spouse or common-law partner under a court order or written separation agreement after a relationship breakdown. If that is your situation, get advice before you rely on the general rule.
What to do next
Before you commit to a structure, work through the tax questions with your lawyer and accountant while the price and terms can still change. A short list helps:
- List the assets in the deal and mark which are equipment, inventory, goodwill, receivables or land.
- Ask how the purchase price will be divided among those categories.
- Confirm whether you are a GST registrant and whether the s. 167 election is realistic.
- Ask about a PST clearance certificate if you are buying a business or goods in a bulk transaction; it is requested with the collector's consent.
- Check whether the seller is related to you or to anyone else in the deal.
- Ask what tax, if any, applies to your deal if land or a lease comes with it.
Frequently asked questions
Do I pay PST if I buy the shares of a BC business?
PST does not apply to the sale of shares of a business. How PST or other taxes apply to the company itself after a share purchase depends on your situation, so it is worth confirming with a lawyer or accountant.
Do I pay PST on goodwill and inventory in an asset purchase?
No. PST does not apply to goodwill, inventory, accounts receivable or real property. It does apply to taxable assets such as affixed machinery, equipment, computer hardware and supplies.
Can I avoid paying GST when buying a business's assets?
Possibly, but only in some cases. If you acquire all or substantially all the property needed to carry on the business and you are a GST registrant, you and the seller may jointly file the s. 167 election so that no GST is payable on supplies under the agreement. It is not available where the seller is a registrant and you are not, and tax still applies to a taxable supply of a service by the seller, to taxable supplies of property by lease or licence, and, where you are not a registrant, to a taxable sale of real property.
How much is property transfer tax if the business comes with its building?
The purchaser pays 1% on the first $200,000 of fair market value, 2% from over $200,000 to $2,000,000, and 3% above $2,000,000. Commercial property is taxed at the general rates.
Sources
- Province of British Columbia – Buying and selling a business (PST) — www2.gov.bc.ca
- Excise Tax Act s. 167 — Justice Laws (federal)
- Income Tax Act s. 160 — Justice Laws (federal)
- Province of British Columbia – Property transfer tax — www2.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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