- In an asset sale, the price is divided among the assets, and without an election each property and service is a separate supply that can attract 5% GST in Alberta.
- A joint GST election under Excise Tax Act s.167 can remove GST on a qualifying business sale, but it is not available where the seller is a registrant and the buyer is not.
- Agree the allocation in writing before closing, and have an accountant and lawyer confirm how it affects each side.
When you buy or sell the assets of a business, the contract usually names one total price. Behind that number sits a second question: how much of the price is for equipment, inventory, goodwill, a lease, and everything else being transferred. That split is called the purchase price allocation.
The allocation affects tax, financing and paperwork for both sides, and buyers and sellers do not always want the same numbers. This article explains the main points in Alberta, with a focus on GST, and what to settle before you sign.
This article covers the law of Alberta.
What a purchase price allocation is
In an asset sale, the buyer does not take over the seller's company. It buys selected assets, such as equipment, inventory, customer lists, a trade name and goodwill. Goodwill is the value of the business beyond its physical items, such as its reputation and customer relationships. The allocation attaches a dollar figure to each group of assets.
Different kinds of assets can be treated differently for income tax, and buyers and sellers often have opposite interests in how the price is split. Because the tax result depends on the facts of your deal, an accountant should review the proposed numbers before they are fixed in the agreement.
Common categories and why they matter
| Asset group | Why the figure matters |
|---|---|
| Equipment and vehicles | Lenders and tax advisers often want a supportable value, and any existing security on the items may need to be dealt with |
| Inventory | Value changes up to closing, so the agreement often says how it will be counted |
| Leasehold improvements and real property | Real property can carry its own GST treatment |
| Goodwill and other intangibles | Often the largest and most debated figure in a sale |
| Services the seller will provide after closing | These can still attract tax even when an election is made |
Whatever numbers you choose should be defensible. They should reflect what the assets are reasonably worth, because the figures may be reviewed later by a lender or by the tax authorities.
How GST fits into the allocation
GST is where the allocation has the most direct effect. Without an election, each property and service in a business sale is treated as a separate supply, with part of the price allocated to it, so GST can apply to the taxable parts. GST is 5% in Alberta, and Alberta has no provincial sales tax.
A special rule can change this. It applies where a supplier sells a business or part of one and the buyer gets all or substantially all of the property that can reasonably be regarded as necessary to carry on that business. If the rule applies and the parties make a valid joint election, no tax is payable on the supplies under the agreement.
The GST election and its limits
The election is made jointly by the seller and the buyer, in the prescribed form with the prescribed information. The CRA form is GST44, titled GST/HST Election Concerning the Acquisition of a Business or Part of a Business.
- The election is not available where the seller is a registrant and the buyer is not.
- Even with a valid election, tax is still payable on a taxable service the seller will render, on a taxable lease, licence or similar supply of property, and, where the buyer is not a registrant, on a taxable sale of real property.
- If the buyer is a registrant, it must file the election with the Minister by the filing deadline for its first reporting period in which tax would otherwise have become payable. The Minister may accept a later date on the buyer's application.
- A separate rule can apply when an estate transfers a deceased person's business property to a beneficiary who is a registrant, if the estate and beneficiary jointly elect and the other conditions are met.
Check the form's current filing instructions before you rely on any date, and have your accountant confirm that your deal qualifies.
Agreeing it and what to do next
A clear allocation schedule attached to the agreement avoids disputes later. If the buyer is using Canada Small Business Financing Program funds, note that financing is capped at the lower of the purchase price or the appraised value of the eligible assets. The program does not finance share purchases, so it is relevant only to an asset deal. The lender may therefore take a close interest in the figures.
- Ask an accountant to model the tax effect of the proposed split for both sides.
- Confirm whether the seller and the buyer are GST registrants, because the election is not available where the seller is a registrant and the buyer is not.
- Decide who will complete and file the GST44 election, and by when.
- Search the Personal Property Registry for registered interests against the business and its equipment before closing.
- Put the allocation schedule in the agreement, and agree to report consistently.
- Have a lawyer review the whole agreement before you sign.
Frequently asked questions
Do the buyer and seller have to agree on the allocation?
In practice, it helps a great deal, because the figures go into one agreement that both sides sign. How any tax reporting works for each side depends on your situation, so it is worth confirming with an accountant or lawyer. Disagreements are better settled before closing than after. A lawyer and an accountant can help you reach numbers each side can support.
Is GST always charged when I sell business assets in Alberta?
No. Without an election, GST at 5% can apply to the taxable parts of the sale. If the business-assets rule applies and a valid joint election is made, no tax is payable on the supplies under the agreement, subject to listed exceptions.
Which form is used for the GST election?
The CRA form is GST44, GST/HST Election Concerning the Acquisition of a Business or Part of a Business. Check the form's current instructions before filing.
Can I use the GST election if the buyer is not a GST registrant?
Not where the seller is a registrant and the buyer is not. Other situations depend on the facts, so confirm with your accountant or lawyer before closing.
Sources
- Excise Tax Act, s.167 (Justice Laws) — Justice Laws (federal)
- CRA – Form GST44 — canada.ca
- ISED – CSBFP FAQ for small businesses — ised-isde.canada.ca
- Alberta.ca – Find a personal property registration — alberta.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 $3,148.95, tax included. Third-party fees are extra.