- The general point to take from this: an asset purchase between unrelated parties at a fair price is a materially different risk profile than a share purchase of a corporation with an…
- - Copies of recent corporate income tax filings and notices of assessment - GST/HST return filing and payment history - Payroll source deduction remittance history, if the business has…
- Request tax records early — don't leave this until the week before closing, since gaps often need follow-up questions.
A business can look financially healthy on paper and still owe the Canada Revenue Agency money — unremitted source deductions, unpaid GST/HST, or reassessed corporate tax from a prior year. For a buyer, the question isn't just whether the seller should deal with that debt before closing; it's whether, and how, that debt could become the buyer's problem too.
Canadian tax law includes rules that can, in certain circumstances, make a person who receives property from someone who owes tax debts responsible for that debt, up to the value of what they received — particularly where the transfer isn't at arm's length or isn't for full value. That principle is one of several reasons CRA due diligence deserves real attention in a business purchase, not just a passing question to the seller.
Why This Risk Looks Different in a Share Deal vs. an Asset Deal
| Share Purchase | Asset Purchase | |
|---|---|---|
| Whose tax history do you inherit? | The corporation's — its full history comes with the entity | Generally none, if the deal is properly structured and priced at fair value between unrelated parties |
| Main protection tool | Representations, warranties, indemnities, holdback | Careful attention to arm's-length pricing, and the same contractual protections |
| Where risk concentrates | Prior years' unfiled or under-remitted taxes inside the corporation | Related-party sales, or sales priced well below value, carry more exposure |
The general point to take from this: an asset purchase between unrelated parties at a fair price is a materially different risk profile than a share purchase of a corporation with an uncertain tax history, or an asset transfer between related parties.
What Buyers Typically Ask For
- Copies of recent corporate income tax filings and notices of assessment
- GST/HST return filing and payment history
- Payroll source deduction remittance history, if the business has employees
- Confirmation of any active CRA audit, reassessment, or payment arrangement
- The seller's own representations, in the purchase agreement, that all required tax filings and remittances are current
None of these guarantee a clean tax history on their own — they're building blocks that, taken together, give your lawyer and accountant a realistic picture before you commit.
Step by Step: Building CRA Due Diligence Into the Deal
- Request tax records early — don't leave this until the week before closing, since gaps often need follow-up questions.
- Loop in your accountant, not just your lawyer — tax filing patterns are often easier to interpret from a financial-statement perspective.
- Ask specifically about GST/HST, since it's collected on most taxable sales and remittance gaps are a common issue in smaller businesses.
- Get seller representations and indemnities addressing pre-closing tax liabilities, regardless of what the records show.
- Consider a holdback sized to the level of uncertainty, especially in a share deal where the corporation's history comes with it.
What This Doesn't Replace
Confirming a clean CRA picture is not the same as tax-efficient deal structuring. Questions like whether the Lifetime Capital Gains Exemption might apply to a seller's shares, how GST/HST should be handled at closing, or whether a joint election is available on a qualifying asset sale are separate tax-planning questions that need their own advice — ideally from an accountant working alongside your lawyer.
Frequently asked questions
Can I get direct confirmation from the CRA that a seller has no outstanding debt?
Formal mechanisms exist in some circumstances for confirming a taxpayer's standing with the CRA, but they're specific and fact-dependent. Talk to your lawyer or accountant about whether one applies to your transaction rather than assuming a general process is available.
Does buying assets instead of shares fully protect me from the seller's CRA debt?
Not automatically, and not in every situation. An arm's-length asset purchase at fair value is generally a lower-risk position than inheriting a corporation's full tax history, but related-party transfers and below-value sales can still raise exposure — this is exactly the kind of fact-specific question to raise with your lawyer.
What if the seller's HST filings are up to date but a payment is missing?
Filing and payment are different things, and both matter. A return can be filed on time while the associated payment is outstanding, which is exactly the kind of detail a document review is meant to catch.
Should this concern hold up my closing date?
It depends on what you find. Many deals proceed with known, quantifiable tax issues addressed through price adjustments, indemnities, or holdbacks rather than a delay — but an unresolved, open-ended tax question is worth pausing for.
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