Does the Bulk Sales Act Still Apply When Buying a Business in Ontario?

If you are buying a business's assets in Ontario, you may have read that you must follow "bulk sales" steps: affidavits, creditor lists and waiting periods. Some older websites and even some people in the industry still say so. That advice is out of date.

The repeal did not make an asset purchase risk-free. A handful of other rules can still leave a buyer responsible for a seller's debts, or leave the assets subject to someone else's claim. This article walks through what replaced the old regime and what to check before you close.

The Bulk Sales Act is gone

Ontario's Bulk Sales Act, R.S.O. 1990, c. B.14, was repealed on March 22, 2017. Buyers of business assets no longer have to comply with bulk sales procedures.

If a checklist, template or website tells you to file a bulk sales affidavit or notify creditors under that Act, it was written for the old law. The protections you need now come from several separate statutes, each with its own trigger. The sections below cover them one at a time.

Retail sales tax and WSIB: two buyer liabilities

The Retail Sales Tax Act, section 6, still applies to a sale in bulk by a person who holds, or must hold, a vendor permit under section 5. The seller must first get a certificate from the Minister showing that listed taxes are paid. A buyer who does not get the duplicate certificate from the seller is responsible to the Minister for the seller's unpaid taxes, penalties and interest. This is narrow: it matters only if the seller holds or must hold that permit.

The Workplace Safety and Insurance Act, 1997, section 146, is broader. When an employer sells, leases, transfers or otherwise disposes of all or part of its business, the buyer is liable for all amounts the employer owed under the Act immediately before the disposition. Without a valid purchase certificate, the WSIB may hold the buyer liable for all amounts the seller owed up to the date of sale.

• Request the WSIB purchase certificate before the date of sale.
• The certificate is valid for 30 days from its issue date.
• It is issued only if the seller's account is in good standing: amounts owing paid, reconciliation forms filed and premiums reported for all past periods.
• No certificate can be issued while an issue on the account is under appeal.

There is an exception for insolvency buyers. Section 146 buyer liability excludes trustees in bankruptcy under the Bankruptcy and Insolvency Act, court-appointed receivers or receiver-managers, liquidators under the Winding-Up and Restructuring Act, and persons acquiring a business under the Companies' Creditors Arrangement Act.

Liens and security interests on the assets

Ontario's Personal Property Security Registration (PPSR) is a public database of registrations under the Personal Property Security Act and the Repair and Storage Liens Act. You can run enquiries against an individual debtor, a business debtor or a motor vehicle, one transaction at a time. It does not cover real property.

Under PPSA section 28(1), a buyer of goods from a seller who sells them in the ordinary course of business takes them free of the seller's security interest. Buying a business's assets outside the ordinary course does not get this protection, which is why a PPSR search and lien discharges matter.

There is a narrower exception. Under PPSA section 20(1)(c), an unperfected security interest in goods, chattel paper, documents of title or instruments is not effective against a transferee who gives value and receives delivery without knowledge of the security interest. Do not rely on this in place of a search. Whether it helps you depends on the facts, including what you knew.

Tax rules that can follow the assets

If the seller is a non-resident disposing of taxable Canadian property, Income Tax Act section 116 applies. If the CRA has not issued a clearance certificate, the buyer must remit 25% of the amount by which its cost exceeds the certificate limit, within 30 days after the end of the month of acquisition. The buyer is not liable if, after reasonable inquiry, it had no reason to believe the seller was not resident in Canada. It is also not liable if the property is treaty-protected or a section 116(4) certificate was issued.

Transferee liability matters mainly when the deal is not at arm's length. Under Income Tax Act section 160(1), a person who receives property from a spouse or common-law partner, a person under 18, or anyone not dealing at arm's length is jointly and severally liable with the transferor for the transferor's tax debts. The cap is the lesser of the transferor's tax owing for the year of transfer and earlier years, and the amount by which the property's fair market value exceeds the consideration paid.

Excise Tax Act section 325(1) works the same way for GST/HST: the buyer is jointly and severally liable for the seller's unpaid GST/HST when property goes to a spouse or common-law partner, a person under 18, or a non-arm's-length person, capped at the lesser of the unpaid GST/HST and the fair market value minus the consideration given. For transfers between separated spouses or common-law partners under a court order, judgment or written separation agreement, the property's fair market value is deemed nil for section 325 purposes.

Share purchases and what to do next

A share purchase works differently. The WSIB says no new legal entity is created in a share sale, so no purchase certificate is required, and the corporation's WSIB account, including any amounts owing, stays with the corporation. In general, the corporation also keeps its own tax and creditor liabilities, so a buyer of shares inherits them indirectly. That is usually dealt with through due diligence and the purchase agreement.

• Confirm whether you are buying assets or shares, since the risks differ.
• Ask whether the seller holds, or must hold, an RST vendor permit, and if so, get the duplicate certificate.
• Request the WSIB purchase certificate before the sale date, and keep the 30-day validity in mind.
• Run PPSR searches against the seller and arrange discharges of any liens before closing.
• Ask about the seller's residence for tax purposes, and make reasonable inquiries.
• Tell your lawyer if the seller is a spouse, family member, minor or otherwise not at arm's length.

Because the right protections depend on the structure of your deal, it is worth having a lawyer and an accountant review the agreement before you sign. They can also decide how to deal with these risks, for example through holdbacks, indemnities or closing conditions.

Frequently asked questions