Entrepreneurship & Small Business

Buying a small biz, worried about tax liability

  • Last Updated:
  • Dec 20th, 2017 6:19 pm
Deal Addict
May 12, 2014
1357 posts
764 upvotes
Montreal
eonibm wrote:
Dec 19th, 2017 10:54 am
You strongly inferred it. Everyone can see that. Nice try in attempting to backtrack
I believe you meant to use the word "imply" here. And no, I implied no such thing (and therefore I'm also not backtracking from your wholly imagined accusation).

As for everyone else, I believe that they can form their own opinions. I do notice this is a common argument technique of yours: to put yourself as the supposed leader or speaker for many people.

eonibm wrote:
Dec 19th, 2017 10:54 am
Watch what you write.
That's rich coming from someone who throws around accusations willy nilly.

eonibm wrote:
Dec 19th, 2017 10:54 am
Doesn't work that way. They aren't heroes by a lot of people who think like you and you might want to entertain the fact that those people can actually be in your own family.
If, as you say, anonymous informants are actually seen as heroes by most people, surely anyone in your family who doesn't support your "good works" will be in the minority.

And what about your friends? Have you admitted that you're an anonymous informant to them? Why would you want to be friends with these people if they're "part of the problem" as you say?

eonibm wrote:
Dec 19th, 2017 10:54 am
Wow, you are quite naive and uninformed! Um, the tip phone and internet are insanely easy to be anonymous on. Please explain exactly how one gets traced if one does it at an internet cafe, library or other public online system, burner phone or via an anonymous letter to the CRA?
Random insult that has nothing to do with my point. Wait, are you Dick from the Internet? You're famous! My point simply was that I believe that the database will eventually become public (by hacking or other means). And I believe that most people did not in fact call the CRA using a "burner phone" or other similar means.



eonibm wrote:
Dec 19th, 2017 1:39 pm
The only way to ensure that [...] is to let them know the discount if for the potential tax assessment due to them cheating on their taxes. One is HARDLY going to bring that up!
Actually, of course a buyer would bring that up. I can't believe that someone who's supposedly a lawyer and has supposedly bought and sold many businesses wouldn't know how to do this easily (See Crossborderguy's example above).



eonibm wrote:
Dec 19th, 2017 1:39 pm
People who should be ratted on don't like rats. The rest are happy that the culprits got caught.
I don't like murderers but I believe that police should get proper warrants when conducting searches.

In a free country it's not just about "catching" people, it's about how you catch them too.


eonibm wrote:
Dec 19th, 2017 1:39 pm
I started, bought and sold many businesses in my career.
No doubt you're also tall, good looking and sing well too.
Deal Guru
Aug 2, 2010
12570 posts
3084 upvotes
Here 'n There
FrancisBacon wrote:
Dec 20th, 2017 2:16 pm
I believe you meant to use the word "imply" here. And no, I implied no such thing (and therefore I'm also not backtracking from your wholly imagined accusation).

As for everyone else, I believe that they can form their own opinions. I do notice this is a common argument technique of yours: to put yourself as the supposed leader or speaker for many people.




That's rich coming from someone who throws around accusations willy nilly.




If, as you say, anonymous informants are actually seen as heroes by most people, surely anyone in your family who doesn't support your "good works" will be in the minority.

And what about your friends? Have you admitted that you're an anonymous informant to them? Why would you want to be friends with these people if they're "part of the problem" as you say?




Random insult that has nothing to do with my point. Wait, are you Dick from the Internet? You're famous! My point simply was that I believe that the database will eventually become public (by hacking or other means). And I believe that most people did not in fact call the CRA using a "burner phone" or other similar means.






Actually, of course a buyer would bring that up. I can't believe that someone who's supposedly a lawyer and has supposedly bought and sold many businesses wouldn't know how to do this easily (See Crossborderguy's example above).






I don't like murderers but I believe that police should get proper warrants when conducting searches.

In a free country it's not just about "catching" people, it's about how you catch them too.





No doubt you're also tall, good looking and sing well too.
Glad you got all those statements that mostly make no sense (except the last one) out of your system... Res Ipsa Loquitor
Sr. Member
Jan 1, 2009
947 posts
256 upvotes
Vancouver
crossborderguy wrote:
Dec 19th, 2017 11:34 am
Before this gets side-tracked...

There are a few simple points to remember when it comes to a business purchase:

- Sellers like share sales. (They get the capital gains exemption on the sale.)
- Buyers like asset sales. (Zero risk to the buyer, and a new CCA pool.)

The sale transaction and associated price is always a compromise between the two methods. If there is a risk (like the tax risk you are talking about) then the sale price needs to be adjusted up or down to reflect that risk. If the sellers insist on selling the shares, then decrease your offer.

The next thing you need to figure out is the reassessment exposure if you did acquire the shares. So assuming that $20k/yr is ineligible, and assuming a 13.5% tax rate, that is exposure of $2,700/yr that CRA could hit you with. With interest on the back taxes, let's call it an even $3,000. And assuming CRA assesses 3 years worth of returns, that's a possible $9,000 exposure.

So there you go, you've quantified the risk. If the sellers want $200,000 for the business (and you were originally OK with that), you offer $190,000, and put $10k away in a savings account as a contingency fund should CRA reassess. Don't grenade a good deal just because of a possible tax risk. Quantify the exposure first, then make a decision as to whether or not you want to deal with the headache.

Also, if/when you acquire the shares, the tax return will change in terms of shareholders and stuff like that. CRA will see the change in ownership, along with the expense changes. Usually if they see an owner change, they are less concerned about the expense variances, or so we are told. Something to thing about anyway.

Lastly, I don't know what neighborhood you are from, but most people don't like rats. If you get labelled as one, it is hard to get away from that reputation, especially in a small town. I'd be cautious about listening to some of the advice in this thread.
Good advice. However, sometimes the seller does not factor in the value of goodwill, making the share sale better than an asset sale from the perspective of the buyer. If the seller factored in goodwill, the price for net assets can jump considerably higher than a share sale which generally ignores goodwill. Also the buyer has to factor in the assumption of liabilities related to the assets of the seller which the share sale may not adjust for.

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