Does anyone have experience with a US company buying assets from a Canadian

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April 25, 2024

by a searcher in Newport Coast, Newport Beach, CA, USA

I am considering a transaction/acquisition mainly for the goodwill of a company operating in Canada. The assets or goodwill will be managed or merged with an existing LLC, located in California essentially as an addition. My question is: would there be any Canadian taxes owed by the acquiring company for the goodwill? Is there any additional tax or fee for a company buying the assets of another company? Are there any other obstacles or roadblocks to consider? Additionally, this will be a cash purchase, so no lenders will be involved.. I appreciate any feedback given.

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Reply by a searcher
from Ivey Business School at Western University in Calgary, AB, Canada
I think you're going to want to consult a cross border tax specialist for these questions. I've used RSM for these sorts of cross border questions before and had good success with their Calgary team. There may be federal and/or provincial sales tax, but I know that can be treated differently depending on the jurisdiction and assets being purchased, and you may actually not have to pay it at all if you're a foreign buyer. Sorry - not that helpful...

Typically the largest roadblock on an asset sale like this is that the sellers prefer a share purchase as it would make the sellers' proceeds eligible for Canadian capital gains tax exemption. Asset sales are not eligible for capital gains exemption, and so it has a material tax implication for the sellers (which in my experience the buyers end up needing to share that cost in order to be competitive vs a share purchase at an equivalent valuation).
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Reply by a searcher
from Queen's University in Calgary, AB, Canada
I think the answers to your specific questions are no and no, but as Mark points out there are other considerations and you'll want to make sure you structure it efficiently so you don't end up paying higher taxes down the road when/if you sell.

I would connect with Kevin Guenther who is a lawyer that specializes in tax and cross-border transactions at Stikeman Elliott in Calgary. He does a lot of the US PE shops that buy Canadian assets, but he also is highly supportive of the search community and works with a lot of Canadian searchers (he knows how to keep these smaller deals efficient). You'll be in good hands with him. redacted
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