Do You Need a PST Clearance Certificate When Buying a Business in BC?

Buying an existing business means you may inherit more than equipment and customers. If the seller has unpaid provincial sales tax, the government may look to you for it. That is why the government's PST guidance tells a buyer to obtain a PST clearance certificate before buying a business.

This article explains what a bulk transaction is, how the clearance process works, which assets are taxed on an asset sale, and what to do about PST after closing. It also touches briefly on related federal GST/HST steps. It is general information, and an accountant or lawyer can confirm how it applies to your deal.

This article covers the law of British Columbia.

Why the clearance certificate matters

The government's PST guidance tells a buyer to obtain a PST clearance certificate before buying a business, and this applies to bulk transactions too. Without one, the buyer is liable for an amount equal to any outstanding amount owed by the seller, who is called the collector.

In plain terms, the seller's unpaid PST can become your problem even though you did not run the business when it arose. That is why the guidance tells you to get the certificate before you buy the business, not after.

What counts as a bulk transaction

A PST bulk transaction includes buying substantially all of a collector's inventory in B.C., meaning more than 90% of it. It also includes buying substantially all of the goods or software used in the collector's B.C. business, or buying an interest in that business.

• More than 90% of the seller's B.C. inventory.
• Substantially all goods or software used in the seller's B.C. business.
• An interest in the business itself.

If your purchase is close to these lines, do not guess. Ask your lawyer or accountant whether it qualifies, because the cost of getting it wrong falls on the buyer.

How to apply

The buyer applies for the clearance either online or by using the Application for Clearance (FIN 447), and the collector's consent is needed. That means the seller must cooperate, so it is sensible to make this a condition of the deal and to start early, well before the closing date.

• Raise the clearance with the seller at the offer stage.
• Get the seller's consent to the application.
• Apply online or with form FIN 447.
• Review the result with your lawyer or accountant before you release the purchase funds.

What PST applies on an asset sale

On an asset sale, goodwill, accounts receivable, franchise fees, inventory, real property and shares of a business are non-taxable. Inventory is exempt if the buyer gives a PST number or a Certificate of Exemption – General (FIN 490).

Be careful with the price allocation. The parties cannot raise the goodwill price and lower the taxable-asset prices to avoid PST, and the Province may ask for support for asset values. Separately, for income tax, the CRA says the price on an asset purchase must be allocated to each asset at fair market value, with the remaining balance attributed to goodwill, and the allocation should match what the vendor reports.

After closing and the federal side

A buyer without a PST number must self-assess PST on taxable items using the Casual Remittance Return (FIN 405) on or before the last day of the month following the month of purchase, so a July purchase is due by August 31. A new business must register before making any taxable sales or leases in B.C..

On the federal side, if a supplier sells a business and the buyer acquires all or substantially all (at least 90%) of the property needed to carry it on, the parties may jointly elect on Form GST44 so no GST/HST is payable on the sale. The election is unavailable where the supplier is a registrant and the recipient is not. Even with the election, GST/HST can still apply to certain services, leases and licences. A change of owners may also require a new CRA business number and program accounts.

• Ask for the clearance certificate before closing.
• Mark your PST filing date in your calendar.
• Confirm with an accountant whether the GST44 election is available to you.

Frequently asked questions