Asset Purchase Price Allocation Calculator
The same price split differently is worth tens of thousands to you and costs the vendor the same. Work out your first-five-year deductions by class, the recapture you are asking the vendor to absorb, and where the negotiation actually sits.
tax saved, first 5 years
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Allocation and Deductions by Class
| Asset | Class and Rate | Allocated | Year 1 | Five Years |
|---|
What Each Party Wants
| Asset | You Want | The Vendor Wants |
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HST and Closing Costs
| Item | Basis | Amount |
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What to Get Into the Agreement
| Item | Why |
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Points That Decide This
What to Do Next
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Disclaimer: Capital cost allowance rates are applied here at 20% for Class 8 equipment, 30% for Class 10 vehicles, 4% for Class 1 buildings, 5% for Class 14.1 goodwill and other intangibles without a fixed term, and straight-line over the remaining lease term for Class 13 leasehold improvements, subject in each case to the specific rules for the property. The half-year rule under Regulation 1100(2) restricts first-year CCA on most acquisitions to half the normal amount, and the accelerated investment incentive and any immediate expensing measures may change the first-year deduction significantly depending on the year of acquisition and the type of property; those measures are not modelled here and should be applied to the specific facts. Corporate tax is applied at the Ontario combined rates of 12.2% within the small business limit and 26.5% generally. On an asset sale, proceeds allocated to depreciable property in excess of the vendor’s undepreciated capital cost give rise to recapture, which is fully included in the vendor’s income, while proceeds allocated to goodwill and other Class 14.1 property generate their own consequences for the vendor. Section 68 of the Income Tax Act permits the CRA to reallocate consideration where an allocation is not reasonable, and the parties’ agreed allocation is not binding on the CRA where it does not reflect fair market value. The section 167 election on Form GST44 can relieve GST/HST on a qualifying supply of a business or part of a business where the recipient acquires all or substantially all of the property necessary to carry it on and both parties are registrants, and it does not apply to supplies of real property to a recipient who is not a registrant. Restrictive covenant amounts are subject to the rules in section 56.4, which are complex and can produce full income inclusion for the vendor absent a valid election. Land transfer tax applies to real property in Ontario, with an additional municipal tax in Toronto. This page is general information, not tax advice, and an allocation should be reviewed before the agreement is signed.
The Allocation Is a Zero-Sum Negotiation
Every dollar you move toward fast-writing assets is a dollar of recapture for the vendor. That is why this schedule is fought over, and why an agreement that leaves it vague usually favours whoever thinks about it first.
| Asset | Your Write-Off | Vendor’s Outcome |
|---|---|---|
| Equipment, Class 8 | 20% declining | Recapture, fully taxable |
| Vehicles, Class 10 | 30% declining | Recapture, fully taxable |
| Goodwill, Class 14.1 | 5% declining | Better treatment |
| Building, Class 1 | 4% declining | Capital gain, plus recapture |
You want equipment and vehicles. The vendor wants goodwill. That is the entire dynamic in one line, and understanding it before the schedule is drafted is worth more than arguing about it afterwards.
Goodwill Takes Roughly Fourteen Years to Half Write Off
Class 14.1 runs at five percent declining balance. On a declining balance that is genuinely slow, and it is the reason buyers resist having a large share of the price land there.
Equipment at twenty percent gives you meaningfully more deduction in the years when a newly acquired business most needs the cash. Vehicles at thirty percent are faster still.
Buyers routinely accept a heavy goodwill allocation without modelling it. On a nine hundred thousand dollar deal, shifting two hundred thousand from goodwill to equipment changes the first five years of deductions substantially. It is a negotiating point, not an accounting formality.
Section 68 Limits How Far You Can Push
The allocation has to be reasonable. Section 68 lets the CRA reallocate consideration where the split does not reflect fair market value, and an agreed allocation between the parties does not bind them.
So the negotiation happens inside a range, not across the whole price. Equipment written down to a low book value can still carry real fair market value, and that is where the honest argument sits. Allocating six hundred thousand to equipment worth two hundred thousand is not a negotiating position, it is a problem.
An independent valuation of the equipment is the strongest support you can have. Where the numbers are material, it turns an assertion into evidence, and it protects both parties if the CRA looks at the deal later.
Both Parties Must Report Consistently
You and the vendor should be filing the same allocation. Where the schedules disagree, the CRA has both returns and the inconsistency is visible.
That is why the allocation belongs in the purchase agreement as a schedule both sides sign, not as something each accountant decides afterwards. An agreement silent on the allocation is an agreement that produces a dispute in eight months.
The Section 167 Election Saves the Cash at Closing
On a qualifying sale of a business where both parties are registrants and the buyer acquires all or substantially all of the property needed to carry it on, the election on Form GST44 relieves the HST.
Without it, HST is payable at closing and recovered later through an input tax credit. The tax generally washes out, but the cash gap at closing is real, and on a nine hundred thousand dollar deal that is over a hundred thousand dollars of financing you would rather not arrange.
- Both parties must be registrants at the time of the supply
- All or substantially all of the property necessary to carry on the business must be acquired
- Real property to a non-registrant purchaser is outside the election
- The election is filed with the purchaser’s return for the period
- Get registered before closing if you are not already
Restrictive Covenants Need Care
A non-compete amount looks like a simple line on the schedule and it is not. The section 56.4 rules are complex, and absent a valid election the amount can be fully included in the vendor’s income with unfavourable results.
Where a non-compete is genuinely part of the deal, it needs to be structured deliberately with advice on both sides. Putting a round number against it in the schedule because it seemed sensible is how these become expensive.
Inventory and Receivables Are Different Animals
Inventory is not depreciable. It is deducted through cost of sales as you sell it, which is faster than any CCA class and is worth remembering when the schedule is being built.
Receivables purchased at a discount raise their own question, and a section 22 election can be worth considering where you are buying the book. It affects both parties and should be agreed rather than assumed.
What This Calculator Does Not Cover
- The accelerated investment incentive and immediate expensing, which can change first-year CCA materially
- Whether the allocation is defensible, which needs valuation support
- The vendor’s full tax position, including any capital gains exemption
- Share purchase as an alternative, which is a different analysis entirely
- Financing structure and the deductibility of interest
- Provinces other than Ontario
Model the allocation before the agreement is drafted, not after. Our business advisory service covers the allocation, the elections and the first year of the new corporation.
Frequently Asked Questions
Common questions on allocating a purchase price.
Related Calculators and Guides
More tools for buying a business.
Model It Before the Schedule Is Drafted
Send us the deal terms and the asset list. We will model the allocation, tell you what is defensible, prepare the GST44 and set up the newco so the first year is clean.