Asset Sale vs Share Sale in Canada: Accounting and Tax Questions to Ask
A plain-language comparison of buying or selling business assets versus corporate shares in Canada, including purchase-price allocation, goodwill, CCA, GST/HST and due diligence.
Quick answer
What Calgary business owners should know
- An asset deal transfers selected business property; a share deal transfers ownership of the corporation that already owns its assets and liabilities.
- Reasonable asset allocations affect inventory, capital cost allowance, goodwill and the tax results reported by both buyer and seller.
- A qualifying GST44 election may apply when the buyer acquires at least 90% of the property necessary to carry on the business and all conditions are met.
- No structure is automatically best: accounting, tax, liability, contracts, employees, financing and legal terms must be considered together.
The transaction perimeter is different
In an asset purchase, the agreement identifies which assets and obligations move to the buyer. That can include inventory, equipment, receivables, customer contracts, a lease, intellectual property and goodwill, while other property or liabilities stay with the seller. In a share purchase, the buyer acquires shares of the corporation. The corporation continues to own its assets and remains responsible for its obligations unless the agreement or a later transaction changes them.
CRA guidance says a share purchase does not change the tax values of the assets already owned by the corporation and is generally not subject to GST/HST. An asset purchase creates new acquisition amounts for the acquired assets based on the transaction and applicable tax rules. The legal and commercial consequences can be substantial, so the accounting model should follow the signed term sheet and legal structure rather than drive them.
| Question | Asset purchase or sale | Share purchase or sale |
|---|---|---|
| What changes hands? | Selected assets and any assumed obligations identified in the agreement | Ownership of the corporation through its shares |
| Asset tax values | Purchase amounts are allocated among acquired property under applicable rules | The corporation's existing asset tax values generally continue |
| Goodwill | Residual consideration may be allocated to goodwill after reasonable asset and inventory values | Goodwill remains inside the corporation unless separately transacted |
| GST/HST | May apply by asset; GST44 may be available if all conditions are met | Purchase of corporate shares is generally not subject to GST/HST |
| Due diligence focus | Title, condition, allocation, contracts and assumed liabilities | Corporate history, all assets, liabilities, tax, contracts and contingencies |
Purchase-price allocation needs evidence
CRA says that when a business purchase agreement sets reasonable prices for individual assets, those amounts may be used to calculate capital cost allowance. If the agreement does not allocate the price, the buyer must determine reasonable amounts for assets and inventory, with the balance potentially attributed to goodwill. The buyer's and seller's reporting should be consistent. Land, buildings, equipment, vehicles, inventory and intangible property do not all receive the same tax treatment.
Goodwill and certain other intangible property generally enter Class 14.1 under current CRA guidance. The sale of depreciable assets may create recaptured CCA or a terminal loss for the seller, depending on the facts. Inventory is dealt with through cost-of-goods-sold rules. These effects mean a single total price is not enough for an asset transaction; the supporting allocation and closing statements need to be completed carefully.
Practical checklist
- List every asset, liability, lease and contract included or excluded.
- Obtain appraisals where land, buildings or specialized equipment have material value.
- Reconcile inventory quantities and aging at the agreed measurement date.
- Document the allocation, tax classes, GST/HST treatment and consistency between buyer and seller.
Tax elections and share qualifications are conditional
CRA states that the buyer and seller may jointly elect under GST44 to have no GST/HST payable on a qualifying sale of a business or part of a business when the buyer acquires all or substantially all—at least 90%—of the property reasonably necessary to carry on that business and the other conditions are satisfied. The election does not apply to a sale of only selected individual assets, and some supplies remain taxable. The filing deadline and registration status also matter.
A seller of qualified small business corporation shares may be eligible for the capital gains deduction, but the shares must meet detailed ownership and active-business-asset tests. Do not assume every private-company share qualifies, and do not publish a permanent exemption amount in a transaction model without checking the current tax year. HBT Accounting provides accounting, financial-record preparation and tax support. Formal business valuations, legal opinions and transaction documents may require a Chartered Business Valuator and lawyer.
- Can HBT compare the accounting and tax consequences of proposed structures?
HBT can prepare scenario calculations and identify accounting and tax questions for the transaction team. The final structure, representations and purchase agreement require legal advice, and any independent value conclusion may require a CBV.
Explore HBT's tax services
Official sources
This guide was prepared from the official sources below. Open them to verify the current rule and review exceptions relevant to your situation.
