Hello…my clients (partnership) sold their business and received $100,000 which the lawyer allocated to Goodwill in the deal. There was no previous value for this asset so I need to know how to record the $50,000 per partner on their Tax Return. Any help would be very appreciated.
I’m guessing you have been reporting the partnership income and expenses on a T2125? Then the goodwill would be a class 14.1 asset on the CCA schedule - both acquired and disposed in the year.
Yes it was reported on T2125…but not the Goodwill; because there wasn’t any when the original purchase was made…so now it’s $50,000 each , and if I put that in the CCA schedule it creates $50,000 of income each as Recaptured CCA…thought they would get a tax break??
Dispose class 14.1 lower of cost or proceeds is zero, however I would usually enter a dollar. So you end up with $1 recapture and the balance to S3 capital gain and pay tax on half the gain.
Hi Jim, I’m a little confused. I have a sole proprietor client that sold his client list for $200,000 (Goodwill). He received $55,000 from purchaser in 2021, $30,000 in 2022. How should this be recorded if it never was recorded previously as an asset. Does he pay tax on 50% of the 2021 receipt and then tax on 50% of 2022 receipt?
The other weird part is the purchaser paid HST on the $55,000. How do I report that to CRA?
Thanks for your help in advance
Claim a reserve for unpaid amounts to spread the gain over a few years. 3 or 4 years is the limit. Look at the reserve rules. There’s a simple formula.
2 Likes
The entire sale/gain must be recorded in the year of the sale, will be a capital gain on S3, in your example $200,000 total gain $100,000 taxable. If you choose you can use a reserve to spread the gain over a maximum of five years (arms length transaction) depending on the payment terms. You must report the greater of twenty percent, or the percentage of the proceeds of the sale price received, times the capital gain each year. In your example, if you received $55k of the $200k you would be required to claim 27.5% of the gain that year.
2 Likes