Bulk Sales and Tax Clearance Certificates for Buyers in Ontario

Older guides tell buyers to follow bulk sales procedures before paying for a business's assets. Much of that advice is out of date, but the idea behind it, protecting buyers from the seller's unpaid obligations, still shows up in other places.

This article explains what changed and which clearances, certificates and tax elections an asset buyer in Ontario should still ask about.

What happened to the Bulk Sales Act

Ontario's Bulk Sales Act was repealed on March 22, 2017, and buyers of business assets no longer have to comply with bulk sales procedures. If a website or form tells you to file a bulk sales affidavit, check its date.

Repeal does not mean the seller's obligations disappear. Other laws can still put a buyer at risk, as set out below.

Retail sales tax bulk sale rules

Section 6 of the Retail Sales Tax Act still applies to a sale in bulk by a person who holds, or must hold, a vendor permit under s. 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 only matters if the seller is, or should be, a vendor permit holder, so ask early.

WSIB purchase certificates

The WSIB says asset buyers should get a purchase certificate. The request must be made before the date of sale, and the certificate is valid for 30 days from its issue date. Without a valid certificate, the WSIB may hold the buyer liable for all amounts the seller owed up to the date of sale.

The WSIB issues a certificate only if the seller's account is in good standing: all amounts owing paid, all reconciliation forms filed and premiums reported for all past periods. In a share sale no certificate is required, because no new legal entity is created.

GST/HST, payroll and the CRA

A buyer of assets may need a new business number and its own payroll and GST/HST accounts. A buyer who acquires all or substantially all (at least 90%) of the property needed to carry on a business can jointly elect with the seller, on Form GST44, to have no GST/HST payable on the sale, if the buyer can continue operating the business with that property.

• Form GST44 must be filed on or before the day the buyer's GST/HST return is due for the first reporting period in which GST/HST would otherwise have been payable.
• The election cannot be used if the seller is a GST/HST registrant and the buyer is not.
• Even with the election, GST/HST still applies to services the seller supplies and to property supplied by lease or licence.

If the purchase agreement sets reasonable prices for individual assets, the buyer can use them to calculate capital cost allowance. If not, the buyer must allocate the price among assets, inventory and goodwill, and the amounts should match what the seller reported. A non-resident seller of taxable Canadian property raises a separate clearance issue under the Income Tax Act.

What to do next

• Ask whether the seller holds, or must hold, a retail sales tax vendor permit.
• Request a WSIB purchase certificate before the sale date.
• Decide with your accountant whether to use Form GST44.
• Set a clear price allocation in the agreement.
• Confirm the seller's residency.
• Run personal property searches and get liens discharged.

A lawyer and accountant can tailor these steps to your deal.

Frequently asked questions