Buying a Business in Ontario: Cost and Tax Calculator
What you need at closing is not the purchase price. Work out the cash actually required, what the sales tax election saves, how quickly each part of the price gets written off, and what the first year really costs.
cash needed at closing
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What You Actually Need at Closing
| Item | Basis | Amount |
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How Fast Each Part Is Written Off
| Part of the Price | Amount | Rate | First Year | Tax Value |
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Assets Against Shares
| Issue | Buying Assets | Buying Shares |
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Points That Decide This
What to Do Next
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Disclaimer: This page produces estimates from the inputs you provide and is not a quotation, a valuation, or advice on a particular transaction. On an asset purchase the price must be allocated among the assets acquired, the allocation affects both parties and is generally expected to be reasonable and consistent as between them, and the allocation agreed in the purchase agreement governs the tax treatment that follows; this page applies the amounts you enter and treats the remainder of the price as goodwill, which is a simplification of a process that should be done properly. Depreciable property falls into prescribed capital cost allowance classes with different rates, and goodwill and similar property fall into the class applicable to such property; first-year claims are generally restricted by the half-year rule, and accelerated investment incentive and immediate expensing measures may increase the first-year deduction for eligible property and eligible persons. The first-year figures here apply half of the stated rate as a simple proxy for those restrictions and do not model the incentives, short taxation years, or the separate rules applying to each class, so the real claim will differ. Inventory is generally deducted through cost of sales as it is sold rather than depreciated. An election is available under the Excise Tax Act allowing a supply of a business or part of a business to be made without goods and services tax or harmonized sales tax where conditions are met, including that both parties are registrants, that the recipient acquires all or substantially all of the property necessary to carry on the business, and that the election is made in prescribed form and filed as required; certain supplies are excluded from the election, and the treatment of real property is subject to its own rules including self-assessment by a registrant recipient. A share purchase is generally not subject to goods and services tax or harmonized sales tax, but the purchaser acquires the corporation with its history and liabilities and does not obtain a step-up in the cost of the underlying assets. Land transfer tax may apply to real property and is not calculated here. Financing availability, eligibility and terms, including under any government-supported lending programme, are matters for the lender. This page is general information, not tax, accounting or legal advice.
The Price Is Not the Cash You Need
Buyers budget for the purchase price and are caught by what sits around it. Legal fees, due diligence, the sales tax at closing where it applies, and working capital to run the business from day one are all real and all land at once.
The sales tax is the biggest of those surprises on an asset deal without the election. Thirteen per cent of a substantial price has to be found at closing and then waited for, because recovering it means filing a return and waiting for the refund.
That is a cash flow problem even when it is not a cost. The tax comes back, eventually, but it has to be paid first, and a buyer whose financing covers exactly the purchase price discovers the gap at the worst possible moment.
The Election Removes It, If Both Sides Qualify
Where a business or part of a business is sold, an election is available that lets the sale happen without the tax being charged. Both parties have to be registrants, the buyer has to be acquiring substantially all of what is needed to carry on the business, and the election has to be made properly and filed.
It is routine on a going-concern sale and it is also routinely forgotten until closing week. Certain supplies are excluded, and real property has its own rules, so it is not quite universal, but on most small business purchases it applies and it is worth raising early.
Where the Price Sits Decides How Fast You Get It Back
This is the part buyers underestimate. The purchase price is not one deduction; it is split across categories that are written off at very different speeds, and goodwill is the slowest of them.
| Part of the price | How it comes back |
|---|---|
| Inventory | Deducted as it sells, quickly |
| Equipment and fixtures | Depreciated at a moderate rate |
| Building | Depreciated slowly |
| Goodwill | Depreciated slowly, on a declining balance |
A deal where most of the price is goodwill produces a much smaller early deduction than one where most of it is equipment. That is not a reason to misallocate; the allocation has to be reasonable and both parties report it. But it is a reason to understand what you are agreeing to before the agreement is signed.
The allocation is negotiated, not chosen afterwards. Buyer and seller usually want opposite things, and the agreed figures bind both. Our purchase price allocation calculator works through that in detail; this page is about the cash and the first year.
Assets or Shares Is the Other Big Fork
Buyers generally prefer assets: the cost base of what you buy is reset to what you paid, and you leave the history behind. Sellers generally prefer shares, because the capital gains exemption applies to shares and not to assets.
That tension is one of the main things negotiated in a small business sale, and it is frequently resolved with price. A seller who gives up a share deal is giving up a substantial tax benefit and will usually want paying for it.
Buying shares means buying the history. Payroll arrears, unfiled returns, warranty claims, environmental issues and anything else the corporation has done come with it. Diligence matters far more on a share purchase, and the indemnities in the agreement are doing real work.
Financing Lands Before the Business Earns Anything
Payments usually start before the business has produced a month of cash flow under your ownership, and the transition period is rarely as smooth as the projections assume.
Working capital beyond the purchase price is what carries that gap. A deal that uses every available dollar at closing leaves nothing for the first slow month, staff turnover, or the supplier who wants cash up front from a new owner.
What This Calculator Does Not Cover
- The detailed allocation exercise, which has its own page
- Land transfer tax where real property is involved
- Immediate expensing and the accelerated incentive, which can change year one
- Whether the business is worth the price, which is valuation
- Lender eligibility under any financing programme
- Employment obligations to the staff you inherit
Get the structure right before the agreement is drafted. Our business advisory service covers assets against shares, what the allocation does to your first few years, and what cash you genuinely need rather than what the price says.
Frequently Asked Questions
Common questions on buying a business.
Related Calculators and Guides
More on acquiring a business.
Look at the Structure Before the Agreement Is Drafted
Send us the deal terms and what you are actually buying. We will work through assets against shares, what the allocation does to your first few years, whether the sales tax election applies, and what cash you genuinely need at closing.