Banka: Think of the impact of PST when buying a business

When you are buying a business expect to pay PST on the assets that are considered taxable.

If you are considering buying a business, there may be PST on all or some of the purchase. PST applies to the sale of new and used goods and software unless an exemption applies. When you are buying a business expect to pay PST on the assets that are considered taxable.

Here are some items that you must pay PST on: Affixed equipment and machinery, shop equipment, vehicles, appliances, computer hardware, shelving and display equipment, software (unless exempt), stationery, furniture and equipment, office and cleaning supplies and tools.

Equipment and machinery that is installed in a building and is used directly in the manufacture, production, processing, storage, handling, packaging, display, transportation, transmission or distribution of goods or used in the provision of software or a service requires the payment of PST.

There is an exemption for equipment and machinery that is installed in a building where it becomes part of the building and is classified as ‘real property’. This equipment and machinery would be something like a heating or air conditioning system.

The bulletin that explains the affixed machinery is PST503 and the bulletin that explains real property is PST501 if you require more information.

The assets that are non-taxable are items such as: Accounts receivable, franchise fees, goodwill, inventory, lease inventory, permits and certain licences, real property, equipment that qualifies for the production machinery exemption (see PST110), other goods such as certain publications and safety equipment (see PST200).

So when you structure your purchase you cannot allocate a nominal amount to the assets and just treat the rest as goodwill to avoid the tax. The assets must be listed and transferred at fair market value which is defined to be the retail price that the good, software or service would normally sell for on the open market.

How do you pay the PST? Normally the amount of PST would be indicated in the purchase contract. You would pay the seller who would then need to remit the PST to the Ministry.

If the seller did not charge PST on the assets, then you are required to self-assess. If you don’t already have a PST number, you still need to self-assess using a Casual Remittance Return (FIN 405). The PST is due to be remitted on the last day of the month following the month that the purchase took place.

For an example, if you were to purchase a winery, the real property (land and buildings) would be non-taxable, the wine making equipment would be exempt as production equipment and machinery and would require a Certificate of Exemption; but the office equipment would be taxable.

Another example could be a restaurant where the industrial grill and ranges, cooking dishes, tables and chairs, office equipment, serving dishes and utensils would all be taxable. The inventory of take out boxes would be exempt.