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  • Jul 1st, 2018 10:25 am
[OP]
Member
Jun 5, 2008
278 posts
2 upvotes
Toronto

Buying an existing website

Hi Everyone,

Looking for some basic legal and tax direction here, maybe a link or something. I've already done a google search and checked the CRA website but I'm not a tax accountant so I couldn't really find what I was looking for.

I am looking at buying a website from a broker and transferring it to my sole prop business. This would be an asset purchase in that I would be buying the domain, website account, other digital assets and (mostly ) good will. Websites like this trade hands at a multiple of profit (usually 20-30x monthly profit). There would be no stock involved. I would be using a broker like Empire Flippers or FEinternational. I would be outlaying <50K USD so this would be a small deal compared to most business purchases.

The seller would be foreign (but the assets transfer would be handled by a broker) and the income would almost all be foreign as well.

From a legal perspective I want to use a sole prop because the business is so small, I have no employees and my customers and suppliers would want me to legally link myself personally anyways so I don't think I'd get any substantial legal protection from a corporate entity vs the headaches of administering it.

Anyone have any good links that would explain the Canadian tax ramifications? If I sell the site later can I claim the purchase price as an ACB or do the selling prices for this type of business get taxed at my marginal rate without consideration of the purchase prices?

In addition is there anything good , that a laymen could understand, explaining the pros and cons of various legal entity structures as they pertain to running a website in Canada?

Please don't reply with something like you should contact an accountant or lawyer, this it goes without saying. I am looking to educate myself in the matter so that I hopefully choose a quality advisor.
1 reply
Member
Jun 25, 2011
322 posts
109 upvotes
Alberta
Buying a website is no different than buying any other asset. The only difference is that it will be all intangible assets. I am sure you will be buying rights to the domain name or may be existing content on the website rather than shares of the corporation. Since you will be primarily hosting the website from hosting provider and rights to the domain name, what you actually paid for the website will be mainly goodwill. As you can generally buy domain name and setup website for quite cheap.

You can record the purchase price goodwill and classify it newly created class 14.1 and take 5% amortization. If you go this route then when you sell the website more than you bought then you will have capital gain and possible recapture of CCA. If you do not amortize the purchase price then your ACB will be the price you paid to acquire the rights.

The selling of your website in future will be considered capital gain, but it will be classified as business income if you are in the practice of buying and selling website. Based on what you said, it looks like you will be selling some other products and will be leveraging the web presence of the website which makes your website as capital property and when you dispose the website then only half amount of gain will be taxed. But the downfall is if you sell it at loss then only half the amount will be allowed to be deducted and that too only to other capital gains.

I do not think there are any legal status for running the website in Canada. The general criteria of incorporating and corporations are typically will apply on website as well. You have to know the tax rules of shipping your product to Canada and outside Canada.

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