Buying Business Assets in Manitoba: The Bulk Sale Tax Certificate

Buying the assets of a business, such as equipment, inventory and fixtures, can look simpler than buying the company itself. But with assets you do not just take the good parts. In Manitoba, a seller's unpaid provincial tax can follow the assets to you if the paperwork is not done properly.

This article explains the bulk sale tax clearance certificate: what counts as a sale in bulk, who applies, what protects you as a buyer, and what to put in your purchase agreement. It is general information, and the details of your deal are worth confirming with a lawyer or accountant.

This article covers the law of Manitoba.

What counts as a "sale in bulk"

Under The Tax Administration and Miscellaneous Taxes Act (TAMTA), a sale in bulk is a sale, barter or exchange by a seller of inventory outside the ordinary course of business. It also covers tangible personal property used in the business, if it is sold in connection with the seller ceasing to carry on that business or part of it.

In plain words, selling a few items to customers is not a bulk sale. Selling off the stock or the equipment as the seller winds down or sells the business, or part of it, is the kind of transaction the rules are aimed at.

The certificate: who applies and who gets what

Before disposing of property in a sale in bulk, the seller must apply to the director (Taxation Division) for a certificate. The certificate shows that the seller has no tax debt, or that satisfactory arrangements for paying the tax debt have been made.

The director issues the certificate in duplicate, and the seller must give one duplicate to the buyer. That duplicate is your protection, so it is the document to ask for.

• The seller applies, not the buyer.
• The Taxation Division issues the certificate with no fee.
• The application must include the sale agreement with a breakdown of the price by asset class.
• The final return and remittance are due on the 20th of the month after the sale.

What happens if you close without the certificate

An asset buyer who does not obtain the duplicate certificate is liable, on assessment under s. 46, for the seller's tax debt as at the date of sale. That includes amounts assessed later for earlier transactions. The debt may be enforced against the buyer, the seller or both.

If you do end up paying part of the seller's tax debt, you can recover it from the seller, withhold it from money you owe the seller, or sue for it as a debt. Those remedies are only as good as the seller's ability to pay, so avoiding the problem is better than relying on them.

The protection works the other way too. A buyer who obtained the duplicate certificate is protected. If the director later finds a tax debt that existed when the certificate was issued, it may be enforced against the seller but not against the purchaser who obtained the certificate.

When the bulk sale rules do not apply

The TAMTA bulk sale rules apply to asset sales only. Manitoba Taxation Division guidance states that a sale of shares or partnership interests is not a sale of business assets that comprises a bulk sale, and corporate amalgamations are not treated as asset sales.

That does not mean a share purchase is risk-free. When you buy shares, you inherit the company with its history, so due diligence on its tax and other obligations matters even more. Which structure suits you depends on tax, liability and commercial factors that a lawyer and accountant can compare.

What to do next

Build the certificate into the deal from the start, rather than raising it near closing. Ask the Taxation Division for its current bulletin on bulk sales and the current application form, since requirements and forms can change, and confirm the details of your deal with a lawyer or accountant. The application must include the sale agreement with a breakdown of the price by asset class.

• Confirm whether your deal is an asset sale or a share or partnership interest sale.
• Ask the seller to apply for the certificate early, with the sale agreement and a price breakdown by asset class.
• Make delivery of the duplicate certificate a condition of closing in the purchase agreement.
• Do not release the full price until you hold the duplicate.
• Keep a copy of the certificate with your closing records.
• Talk to a lawyer or accountant about the other taxes and filings that come with an asset purchase.

Frequently asked questions