When you buy an existing business, you usually pay a significant amount of money for it, and proper cash flow planning remains crucial to the process. Under the rules of the goods and services tax and harmonized sales tax, the sale of a business is a taxable supply. Technically, you need to pay the tax to the seller. If you have a registered GST/HST account, you eventually recover the costs of paying the GST/HST as an input tax credit. However, that process can take weeks or even months, potentially leaving you with a cash flow issue. But don’t fret. Fortunately, there is a legal way to avoid paying the GST on the acquisition of a business.
File a Joint Waiver to Avoid Paying GST During an Acquisition
The Excise Tax Act, which is the law that governs GST/HST provisions, allows the buyer and the seller of a business to agree jointly to waive the tax. You can make this waiver work if the seller supplies a business, or part of a business, that is currently active. You must also substantially acquire all of the assets required to continue to carry on the business.
Procedures for the Waiver
To take advantage of this waiver, you need to follow a couple of basic steps:
- Register for the GST/HST. If you are using a new company to acquire a second company, make sure you register your new company before you proceed with the purchase.
- Complete Form GST44, and file it with the Canada Revenue Agency with your next GST/HST return.
This little-known manoeuvre can help improve cash flow as well as save you a lot of money on financing costs when you buy a business. Keeping accurate records and tracking expenses allows you to identify future tax savings. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.