If you buy a business in Ontario and the seller owes Retail Sales Tax (“RST”), you must get a tax Clearance Certificate from the Ontario Government or you will be held liable for the taxes owing.
Persons who sell their business or business assets, in whole or in part, through a sale in bulk to which the Bulk Sales Act applies, are required to obtain a Clearance Certificate from the Ministry of Finance. A Clearance Certificate certifies that all Retail Sales Tax collectable or payable by the seller has been paid or secured.
The Bulk Sales Act may apply where there is a sale of stock (i.e., fixtures, goods, chattels) in bulk out of the usual course of business or trade of the seller. I even had a case where the buyer never paid anything for the stock and the Ministry of Finance still assessed the buyer for unpaid taxes owing to the tune of about $200,000.00 !!
Here’s what you have to do to get a clearance certificate.
1.Send a written request for a Clearance Certificate signed by the seller to the Ministry of Finance at least 2 weeks before the sales takes place.
You have to include the following information in your request:
2. The legal name and business/trade name of the seller.
3. The address and telephone number of the seller.
4. The forwarding address of the seller.
5. The date of sale/closing.
6. The details of the sale, i.e., sale of assets, sale of shares, etc.
6. Whether the sale is for a portion of the assets only.
7. A description of assets included in the sale and value if known.
8. The RST Vendor Permit number.
9. Whether the Vendor Permit is to be cancelled.
10. The purchaser’s legal name, address and telephone number. and
11. Written authorization from the seller allowing the release of confidential account details if the request is made by a third party (the buyer, or the seller’s representative,for example).
If you fail to obtain a Clearance Certificate from the seller, Ministry of Finance can hold you as the buyer liable for any RST owing by the seller at the time of the sale.
And if you thought the Canada Revenue Agency’s Collections Department were difficult to deal with, the Ontario Ministry Of Finance Collections Department is worse.