Bulk Sales and Tax Clearance When Buying Assets in Ontario

If you are buying the assets of a business, one of the first worries is whether you could end up paying the seller's unpaid bills. Sellers and brokers sometimes mention bulk sales rules, and many buyers ask whether they apply.

Whether any bulk sale requirements apply to your particular deal is something a lawyer should confirm for you. What you can do without waiting is use the protections that are clearly available: a WSIB certificate, a lien search, careful use of the GST/HST election, and strong terms in the purchase agreement.

Do not rely on old bulk sales habits

Some sellers and brokers still talk about bulk sales affidavits and creditor notices. Ask your lawyer to confirm the current position for your transaction.

The better approach is to treat debt risk as something you manage deliberately. The sections below cover the items that can be checked and documented in an ordinary small-business asset purchase.

WSIB: the purchase certificate

The WSIB issues purchase certificates to verify that a company selling, leasing or transferring all or part of a business has WSIB coverage. If the buyer does not obtain a valid certificate, the WSIB says it may hold the buyer liable for all amounts the vendor owes up to the sale date.

• You must request the certificate before the date of sale.
• The request needs the seller's WSIB account number, your details, the sale date, the transaction type, the asset list and the purchase agreement.
• The certificate is valid for 30 days from the issue date printed on it.
• If closing does not occur within that period, a new certificate must be requested.

Because the request needs the purchase agreement and asset list, your deal documents should be reasonably settled before you apply. If closing might slip, plan for a second request.

Searching for liens on the assets

A lender may have registered a security interest against the seller's equipment, inventory or other assets. Ontario's Access Now service lets a buyer search the Personal Property Security Registration (PPSR) system for liens against a seller's assets. Listed fees include $8 for an online response and $8 for a certificate response.

How to deal with a lien if one turns up depends on the deal, so it is worth confirming with a lawyer, who can handle it through the closing documents.

Sales tax, payroll and the GST/HST election

Whether a buyer can become responsible for a seller's unpaid sales tax or payroll remittances depends on the structure of the deal and the facts. Because that is not something to guess at, ask your lawyer or accountant to review it before you commit, and build protection into the agreement.

The section 167 GST/HST election is a separate issue. It lets buyer and seller jointly elect so no GST/HST is payable on the sale of a business or part of one, using Form GST44. You must acquire all or substantially all (at least 90%) of the property needed to carry on the business, and it cannot be used if the seller is a GST/HST registrant and the buyer is not.

The form must be filed on or before the day your GST/HST return is due for the first reporting period in which GST/HST would otherwise have been payable. GST/HST can still apply to certain services, leases or licences.

Protections to put in the agreement, and what to do next

• Ask your lawyer whether any bulk sale requirement applies to your deal.
• Request the WSIB purchase certificate before the date of sale.
• Search for liens on the assets you are buying.
• Ask the seller to confirm in the agreement that taxes and payroll remittances are current, and get an indemnity if they are not.
• Consider holding back part of the price until the debt picture is confirmed.
• After closing, update your CRA GST/HST owner information and check whether you need a new business number or payroll account.

If the seller refuses to give assurances about their debts, treat that as useful information about the deal. A lawyer can help you decide whether to adjust the price, add protections or walk away.

Frequently asked questions