Hi guys,
Anyone here have done tax for customer with a sale/purchase of business asset? From my understanding from CRA website, this kind of sale is charged with GST if both the seller and purchaser did not jointly elect ss167(1). My client is the purchaser and he was not aware of this rule when he made the purchase so he thought that GST is not applied on this kind of sale. In the bill of sale, there is no GST charged (about close to $4000 of GST), could I still claim the GST for him?
The exemption applies to the purchase/sale of all or substantially all of a business. Or, part of a business if it is identified as a separate standalone business. So, you could own a furniture manufacturing business and the trucking company that delivers the furniture, both part of the same company. Selling one qualifies for the exemption. But, to just go out and buy an asset for your business is a normal taxable purchase. So, buying a used excavator for your business for $150,000 will attract tax and will not be exempt.
The OP needs to clarify this, but it sounds like there is either no formal documentation for the Purchase and Sale or it is deficient in a number of potential manners.
First, it is unclear from the OP whether GST is actually an issue or not. With an amount of $4K mentioned, that would mean the “sale” would have been in the $80K range. Charging GST is the seller’s responsibility…not the purchaser’s. It appears from the post that either (a) the seller did not charge GST on the sale or (b) it was intended to be part of the price paid, but was not specified.
In instance (a) the purchaser can claim no ITC.
In instance (b) the purchaser can claim an ITC if - and only if - there are the usual documentary requirements attached…that is the legal name of the purchaser, the seller’s BN and the usual date, amount and GST amount specified. If there is no detail…there is still no ITC legally available.
I just had a client purchase a $50K truck from a corporation with no GST charged on it…and none documented on the BOS. So, no ITC…but the vendor may yet still be on the hook to CRA if caught.
And… if the exemption was intended, there should be a formally signed agreement between them for same. GST 44 IIRC.
Sale of a business asset is not the same as the sale of a business or part thereof. GST 44 does not apply. Definitions are on the last page of the form.
Yes so to clarify, my client bought the entire business with its furniture and equipment in it. And the agreement was for $80,000.
Yes, you are absolutely correct. I have yet to see the documentation. This was only his words, and there might not be a documentation as he purchased this business from his family member directly. If that is the case, per bookkeeping duty, am I required to ask him to provide this documentation?
As you explain, it seems that the purchaser cannot claim ITC in this situation without proper documentation. So, for example, if the CRA audit this case, they will make the vendor to pay GST according to the sold amount, and the purchaser still could not claim ITC for the business (since they did not document it), am I correct? I just want to make this point clear so I could proper explain this to my client. Thank you!
As always, the devil is in the details.
Yes - you should ask for documentation. If the agreement was oral and there is no written agreement, they have two choices: write the documents after the fact (this is fine to give effect to an oral agreement) or don’t. Charge GST or don’t.
Depending on which they do, your path is clear.
If the vendor does not charge GST (but should have done so)…and CRA audits at some point…it depends a bit on how they proceed. When they charge the vendor the unpaid GST, the vendor can ask the purchaser to pay it…but lacking an agreement to do same, there is probably no absolute “right” for the vendor to collect for the missed charge. If the purchaser pays it…and if it is within the 4-year ITC claim period…then they may well have a claim.
CRA could just wait until 4 years have passed, charge the vendor the tax, as the 4 yr limit does not apply to tax collected, then they are automatically ahead by the amount of the tax since the purchaser will be denied the claim. Much simpler to fill out the GST 44 and be done with it. This is also a non-arm’s length transaction, so the purchase price may also be an issue.
Absolute hard NO on that if there is no appropriate and complete documentation.
You are not “just a tax guy”. Who you are to say no is someone who is assisting a claim that is both improper and would amount to fraud if there is not anything documenting the ITC. You would be culpable as a third-party.
You should very carefully review CRA’s guidance on Third-Party Civil Penalties:
Another article here: