I know better - but will see what happens anyhow. THIS TOPIC IS OUTSIDE THE SCOPE OF THIS FORUM!
A is buying the shares of B Corp. along with the right to manufacture and sell Product C. There are no tangible assets.
A is selling the rights to Product D to a 3rd party. No tangible assets involved, only drawings and marketing materials or Goodwill.
Is A buying and selling like assets (Goodwill)? If not what are the tax implications?
(The CA firm I wanted to refer this to is on holidays - sorry!!)
I don’t think A is buying and selling like assets; but it is difficult to know for sure without further information. From the description provided it looks like the following is happening;
A is purchasing shares of a corporation (B Corp). Presumably A is purchasing the shares of B Corp because B Corp owns the rights to manufacture and sell Product C. So by virtue of A Purchasing the Shares of B Corp, A now has the right (through B Corp) to manufacture product C. The way it has been described it seems like a share purchase (shares of B Corp) rather than an Asset purchase, whereby A directly purchases the rights to Product C from B Corp or whomever owns the rights to Product C.
In an unrelated transaction A is selling the rights to Product D, which would seem to be a disposal of an intangible asset (possibly under class 14.1), which may attract recapture of CCA (formerly CECA) as well as capital gains on disposal.
It seems that Mr A might be purchasing shares of a corporation, but selling an intangible property, which would have no offset.
Furthermore, I believe under the rules that surround the new(ish) Class 14.1 (goodwill and other intangible property) the subsection 13(4) and 44(1) Asset Replacement rules (to defer recapture and capital gains) do not apply like they did with the old CEC Schedule. In order for the replacement property rules to apply, the former property must be a “real property” and intangible assets do not meet that definition. So, even if you are both purchasing and selling an asset that might fit into Class 14.1 I believe you would still need to calculate recapture and capital gain on the sale of Product D.
Thanks, Wayne. You did read the situation correctly. We were of course hoping that somehow the two unrelated transactions would end up in a wash type situation. But I guess that is not to be. The sale of Product D will be 100% gain - there is no recapture and no ACB.
A is selling the rights to Product D to a 3rd party. No tangible assets involved, only drawings and marketing materials or Goodwill.
Asset Class 14.1 Technology Proceeds - right to manufacture and sell Product D @ $sale price
References re class 14.1
Examples for business, professional, and fishing are franchises, concessions, or licences for an unlimited period.
For tax years that end prior to 2027, properties included in Class 14.1 that were acquired before January 1, 2017, will be depreciable at a CCA rate of 7% instead of 5%. Transitional rules will apply.
Properties that are included in Class 14.1 and acquired after 2016 will be included in this class at a 100% inclusion rate with a 5% CCA rate on a declining‑balance basis and the existing CCA rules will normally apply.