- Goodwill, accounts receivable, franchise fees, inventory, real property and shares are non-taxable on a PST asset sale, but inventory exemption needs a PST number or a FIN 490.
- A buyer who skips a PST clearance certificate is liable for an amount equal to the seller's outstanding PST.
- A buyer without a PST number must self-assess PST on taxable items by the last day of the month after the purchase.
When you buy a business, you are often buying equipment, inventory, goodwill and more, all in one price. It is easy to assume the sale price is all you owe. In British Columbia, PST can also apply, and the seller's unpaid PST can become your problem.
This article explains how PST generally treats the assets in a business sale and how a clearance certificate fits in. Your accountant and lawyer can apply it to your deal.
This article covers the law of British Columbia.
Is PST charged on the assets in a business sale?
It depends on the asset. On a PST 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).
Items that are not on that non-taxable list, such as equipment, furniture or software, are the ones to ask about. Whether PST applies to a particular item is worth confirming with an accountant.
| Asset | PST treatment on an asset sale |
|---|---|
| Goodwill | Non-taxable |
| Accounts receivable | Non-taxable |
| Franchise fees | Non-taxable |
| Inventory | Non-taxable, and exempt if you give a PST number or FIN 490 |
| Real property | Non-taxable |
| Shares of a business | Non-taxable |
Do not shift value to goodwill
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. Allocate the price based on what the assets are worth. Keep the paperwork that shows how you reached the numbers.
What is a PST clearance certificate?
The PST publication 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 the collector.
A bulk transaction includes buying substantially all (more than 90%) of a collector's inventory in B.C., substantially all goods or software used in the collector's B.C. business, or an interest in that business. The buyer applies for the clearance online or by Application for Clearance (FIN 447), with the collector's consent.
Because the seller must consent, ask for that consent early. Build it into the offer so the seller agrees to cooperate.
Paying PST and registering
- If you do not have a PST number, you must self-assess PST on taxable items using the Casual Remittance Return (FIN 405).
- The return is due 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..
Other checks that sit alongside PST
PST is only one risk. A search of the BC Personal Property Registry shows security agreements and commercial liens, but builders' liens, family maintenance liens and some other liens are filed with other agencies. So a PPR search alone does not reveal every lien. Ask your lawyer which other searches suit your deal. WorkSafeBC clearance is also something for the buyer to check.
- A PPR search can be done in person at a Service BC location, through a third-party service provider, or by mailing BC Registry Services a request with a $10 cheque or money order payable to the Minister of Finance.
- Direct online PPR access is limited to professionals with a premium account, so a buyer usually searches through Service BC, a mailed request, or a lawyer or search agent.
- GST/HST is separate from PST. If you acquire all or substantially all (at least 90%) of the property needed to carry on the business, you and the seller may jointly elect on Form GST44 so no GST/HST is payable on the sale.
- That election is unavailable where the seller is a registrant and the buyer is not, and even with it GST/HST can still apply to certain services, leases and licences.
- A change of owners may require a new CRA business number and program accounts.
- Employees who stay with the business generally keep their past service, so the buyer takes on the seller's obligations to them. If the seller terminates employees before the sale, the seller owes their outstanding wages and compensation and the purchaser is not liable.
If you buy shares rather than assets, you take the company with its history and liabilities. How that affects PST and other exposure depends on your deal, so it is worth confirming with a lawyer or accountant.
What to do next
- Ask the seller whether they are a PST collector and whether they will consent to the clearance application.
- Apply for the clearance online or with FIN 447 before closing.
- Decide whether you have a PST number or need FIN 490 for inventory.
- Get a written price allocation and have an accountant review it.
- Diary the self-assessment deadline if you need to file FIN 405.
Frequently asked questions
Do I always need a PST clearance certificate?
The PST publication tells buyers to obtain one before buying a business, and says this applies to bulk transactions too. Without one, you are liable for an amount equal to the seller's outstanding PST.
What counts as a bulk transaction?
It includes buying more than 90% of a collector's inventory in B.C., substantially all goods or software used in the collector's B.C. business, or an interest in that business.
Is PST charged on goodwill?
No. Goodwill is non-taxable on a PST asset sale. However, the parties cannot inflate goodwill and reduce the price of taxable assets to avoid PST.
When do I pay PST if I have no PST number?
You self-assess on taxable items using FIN 405, due on or before the last day of the month following the month of purchase. A July purchase is due by August 31.
Sources
- gov.bc.ca – Personal property liens and searches — www2.gov.bc.ca
- gov.bc.ca – PST: Buying and selling a business — www2.gov.bc.ca
- gov.bc.ca – ESA Interpretation Guidelines, Part 11, Section 97 — www2.gov.bc.ca
- Excise Tax Act, s.167 — Justice Laws (federal)
- CRA – Buying a business — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,358.88, tax included. Third-party fees are extra.