Section 167 of the Excise Tax Act is a relieving provision that can prevent GST/HST from applying to the asset sale. It can be used if all of the following conditions are met:
- If the vendor is a registrant, the purchaser must also be a registrant;
- The vendor is supplying a business or part of a business;
- The vendor established, carried on, or acquired the business or part of a business;
- Under an agreement, the purchaser is acquiring all or substantially all of the property that is reasonably necessary for the purchaser to carry on the business or part of a business; and
- A joint election is made by the vendor and purchaser.
There are many factors to take into consideration when deciding whether to structure a transaction as a share sale or an asset sale. However, it is far more beneficial from a tax perspective for a business owner to sell shares of a small business rather than its assets if the conditions for the lifetime capital gains exemption are met. You will not have to pay tax on any capital gains up to the exemption limit.
A business owner who sells shares of a corporation enjoys the benefit of limited liability. A corporation that has been active in the marketplace is usually saddled with liability. By selling the shares of the corporation, the seller effectively transfers all of its liability along with the sale to the buyer.
