Foreign Buyer Canadian Business Acquisition Cost Calculator
Buying a Canadian company from outside Canada. Work out the closing costs above the purchase price, the thirty-day filing nobody mentions, the vendor holdback you must retain, and the losses that disappear on closing.
extra cost at closing
—
—
—
—
Cost Above the Purchase Price
| Item | Basis | Amount |
|---|
Filings and Deadlines
| Filing | Deadline | Applies |
|---|
What Happens to the Target on Closing
| Consequence | Detail |
|---|
Points That Decide This
What to Do Next
—
Disclaimer: We are Chartered Professional Accountants and not lawyers. The Investment Canada Act, land transfer tax legislation and the conduct of an acquisition all involve legal questions on which legal advice should be obtained, and nothing here is legal advice. Under the Investment Canada Act, a non-Canadian acquiring control of an existing Canadian business is generally required either to file a notification, which must be filed no later than 30 days after the implementation of the investment, or, where the applicable financial thresholds are exceeded, to file an application for review before closing; the thresholds vary with the nature of the investor and are adjusted annually, and certain investments may also be subject to national security review regardless of value. Whether a particular investor is a non-Canadian and whether a transaction constitutes an acquisition of control are determined under the Act. Where a non-resident vendor disposes of taxable Canadian property, section 116 of the Income Tax Act generally requires the purchaser to withhold and remit 25% of the purchase price, or 50% for certain property, unless a clearance certificate is obtained, and the purchaser is liable for the amount if it does not withhold. Ontario land transfer tax applies on a conveyance of land, with an additional municipal land transfer tax in the City of Toronto, and Ontario’s Non-Resident Speculation Tax applies at 25% to designated land containing residential property acquired by foreign entities, subject to the conditions and exceptions in the legislation. On an acquisition of control, subsection 249(4) generally deems a taxation year to end immediately before the acquisition, with a return due for that short year, and non-capital losses are subject to restriction under subsection 111(5) such that they may only be deducted where the same or a similar business is carried on with a reasonable expectation of profit and only against income from that business or a similar one; net capital losses generally expire on an acquisition of control. GST/HST on an asset purchase and the section 167 election are addressed on the linked page. Figures here are indicative planning estimates. This page is general information, not legal or tax advice.
Three Things Foreign Buyers Miss
The purchase price gets all the attention. These three do not, and each one costs real money or creates real liability.
- The thirty-day Investment Canada notification, which is easy and easily forgotten
- Section 116, where the vendor is non-resident and you are on the hook if you do not withhold
- The deemed year end on closing, which brings a return and kills losses
All three are the buyer’s problem, not the vendor’s. The section 116 liability in particular sits with the purchaser. Where a non-resident vendor takes the full price and leaves, the CRA looks to you for the withholding you should have retained, and that is not recoverable in practice.
The Investment Canada Notification Runs From Closing
A non-Canadian acquiring control of an existing Canadian business is generally required to file a notification within thirty days after the investment is implemented, or, where the financial thresholds are exceeded, an application for review before closing.
The notification is a straightforward filing. The problem is that the deadline runs from closing, at exactly the point when everyone involved has moved on to integration. It is missed regularly and it should simply be diarised on the signing date.
Whether the transaction needs review rather than notification is a legal question and it must be settled before closing. Review is a pre-closing process, so discovering it afterwards is not a fixable situation. Thresholds vary by investor type and are adjusted annually, and national security review can apply regardless of value.
Section 116 Makes You the Collection Agent
Where the vendor is a non-resident disposing of taxable Canadian property, the purchaser must generally withhold twenty-five percent of the purchase price, or fifty percent for certain property, unless a clearance certificate is obtained.
On a four million dollar deal that is a million dollars you retain until the certificate arrives. Vendors resist it, and the resistance is not your problem, because the liability for failing to withhold is yours.
| Vendor | Your Obligation |
|---|---|
| Canadian resident | Nothing under section 116 |
| Non-resident, no clearance certificate | Withhold 25% or 50% and remit |
| Non-resident, certificate obtained | Withholding reduced accordingly |
Get residency certified in the purchase agreement and hold the funds in escrow rather than trusting a representation. A vendor who is genuinely resident loses nothing by confirming it.
The Company Has a Year End on the Day You Buy It
On an acquisition of control the taxation year is generally deemed to end immediately before the acquisition. That means a T2 for the stub period, on top of the return for the year that follows.
It is an administrative cost and it is also a diligence point, because that return has to be prepared from the vendor’s records after the vendor has gone. Getting access to the books agreed in the purchase agreement matters more than it sounds.
Losses Are the Big One
A target with substantial loss carryforwards looks like it comes with a tax asset. On an acquisition of control most of that value is restricted or lost.
- Non-capital losses survive only where the same or a similar business is carried on with a reasonable expectation of profit, and only against income from that business or a similar one
- Net capital losses generally expire on the acquisition of control
- Changing the business direction after closing can end the availability of the losses entirely
Never pay for losses in the purchase price without advice. A buyer intending to redirect the business is buying losses that will not be usable, and vendors frequently price them into the ask. This is one of the most common overpayments in cross-border acquisitions of Canadian companies.
Residential Property Carries a Twenty-Five Percent Tax
Ontario’s Non-Resident Speculation Tax applies at twenty-five percent to designated land containing residential property acquired by foreign entities, subject to the conditions and exceptions in the legislation.
Most operating business acquisitions do not involve residential property. Where one does, that tax is large enough to change the deal, and it needs legal advice rather than an estimate.
Shares or Assets Changes the Whole Picture
| Share Purchase | Asset Purchase | |
|---|---|---|
| HST at closing | Not applicable | 13% unless the election applies |
| Land transfer tax | Generally not triggered | Applies on conveyed land |
| Section 116 | Applies on taxable Canadian property | Depends on the assets |
| Deemed year end | Yes, on acquisition of control | No, you buy assets |
| Historical liabilities | Come with the company | Generally left behind |
The mechanics of each item live on their own pages. This page prices the foreign-buyer layer. For the detail see our pages on the section 167 election, section 116 withholding and purchase price allocation.
What This Calculator Does Not Cover
- Investment Canada review thresholds, which need legal advice
- National security review, which can apply at any value
- Legal and diligence fees, which vary with deal complexity
- Your home country’s tax on the acquisition and the returns
- Financing structure and thin capitalisation
- Provinces other than Ontario
Frequently Asked Questions
Common questions on buying a Canadian business from abroad.
Related Calculators and Guides
The mechanics behind each item.
Price the Closing Before the Letter of Intent
Send us the deal terms, the vendor’s residency and the target’s tax position. We will price the closing costs, flag the losses you should not pay for, and work with your counsel on the filings.