The process of purchasing a business in Ontario can be fraught with numerous challenges and concerns. When dealing with the valuation of the assets of the business and the questions about which party will be responsible for which expenses of the transaction, it is important to remember that Ontario's Retail Sales Tax (RST) may apply to the transaction.
If any taxable business equipment (chattels) are being purchased as part of the transaction and that equipment is not for resale, the purchaser must pay RST at a rate of 8% on the value of this equipment. Examples of taxable business equipment (chattels) include:
- Office equipment and furniture, such as desks, filing cabinets, computers,
- Office supplies
- Cash registers
- Tables and chairs
- Cutlery and dishes
In the event that Ontario's Bulk Sales Act applies to the transaction, the purchaser faces another concern. If the purchaser is buying the assets from the vendor in bulk (fixtures, goods or chattels), the purchaser must obtain from the vendor a copy of a Clearance Certificate. The vendor obtains this certificate from the Ontario Ministry of Finance. A Clearance Certificate certifies that all RST collectable or payable by the vendor has been paid or secured. It also protects the purchaser from responsibility for the outstanding RST liabilities of the vendor. The purchaser must make sure to obtain this certificate, as failing to do so may lead to the purchaser being liable for any RST owing by the vendor at the time of the sale.
Requests for Clearance Certificates must be made well in advance of a closing date. The Ministry requires at least two weeks notice prior to being able to issue a certificate. Where RST is owed by the vendor or where an audit remains uncompleted, the Ministry may require funds to be held back from the proceeds of the sale prior to issuing the Certificate.
Potential purchasers of a business should consult legal counsel in order to determine whether the Bulk Sales Act applies to the transaction and to what extent RST may be payable.