Selling a sole proprietorship in Canada: records, GST and taxes to plan for

Selling the work you do under your own name is a real transaction, even though there is no separate company to hand over. This page is a high-level map for Canadian sole proprietors: what you are usually selling, which records matter, and which tax questions to raise early. It is not a complete guide, and it is not instructions for any one situation.

This guide is for general information only. It is not tax, legal or accounting advice and not a complete guide to selling a business. Rules depend on your situation. Confirm with the Canada Revenue Agency or a qualified professional before you act.

A sole proprietorship is you, not a separate company

For tax purposes, you and the business are the same person. There are no shares to transfer. A sale usually means selling assets, a customer list, equipment, inventory, or goodwill. Goodwill is the value of the going concern: the name, the repeat work, and the chance that customers will stay. The paperwork should say what is included and what you are keeping.

That is a concept, not a legal structure to copy. How you write the agreement, what happens to a lease, and what you tell customers are questions for a lawyer who can see your facts. This page does not tell you how to set up the deal. It tells you which topics to put on the list before you sign anything.

Buyers still want a number they can test. How they talk about that number is covered in how much a small business is worth. Read that before you quote a price from memory. A price you cannot explain with records is a price a careful buyer will cut.

Records buyers and their accountants will ask for

Expect a request for more than last month's invoices. Accountants want several years of income and expenses, tax filings, bank statements that match the books, and the contracts that show the work will continue. If you claimed vehicle or home office costs, they will want the logs behind those claims.

Gather this before you list the business, not after someone asks. A slow reply looks like a gap. Our checklist of records buyers want is a practical place to start. Use it as a packing list, then ask the buyer's accountant what else they need for this sale. Every deal is a little different.

GST/HST when you sell

Whether GST/HST applies when you sell business assets depends on the situation. Some sales of a business as a going concern have special rules. This guide does not say when a sale is taxable or when it is not. Confirm that with the Canada Revenue Agency or a professional before you write a price that may or may not include tax.

When you stop making taxable supplies, you may need to close or update your GST/HST account. Check with the CRA about what they need from you. Do not guess a form name or a date from a blog. If you are still operating, the sales tax calculator only works out tax on an ordinary amount. The GST/HST registration checker only looks at the small-supplier threshold. Neither tool tells you how to treat the sale, and neither one closes an account.

Quebec has its own QST rules on top of GST. If that applies to you, ask Revenu Québec or your accountant as well as the CRA. This page does not give province-by-province filing steps.

Capital items vs inventory and day-to-day costs

Buyers look at a normal year's income and costs, and they look at which equipment and inventory are included in the price. A year with a one-time job, or a year when you bought a lot of stock, can look stronger or weaker than the business usually is. Say so in writing, and show the invoices, so nobody treats a spike as the new normal.

Equipment you have owned for a while may have been claimed over time through capital cost allowance, often called CCA. Selling those assets can have tax results. Ask an accountant before you agree which items are in the deal. This page does not calculate CCA, and it does not tell you what the tax result will be. Inventory is different again from a laptop or a van. List them separately so the price is not one blurry number.

Taxes on the sale, at a high level

What you sell can be taxed in different ways. Inventory, capital property, and goodwill are not the same kind of receipt. Depending on what you sell, you may have business income or a capital gain. Which one applies is a question for an accountant who can see the agreement and your past returns.

You may have heard of the lifetime capital gains exemption. That exemption is generally about shares of a corporation. A sole proprietorship does not have shares. Do not assume the exemption is available to you because someone used it when they sold a company. This page does not state rates or amounts. Talk to an accountant before you sign.

A simple prep checklist

• Tidy two or three years of books so income and expenses are easy to follow.
• Reconcile bank statements to those books.
• Gather GST/HST returns, or the quarterly summaries if that is what you have.
• List the assets, inventory, and customer relationships included in the price.
• Note recurring customers and the key contracts a new owner would rely on.
• Get legal and tax advice early, before the price is treated as final.

Work the list in that order if you can. Advice is more useful when the accountant can see real totals instead of a shoebox. If a vehicle was part of the work, a trip log with odometer readings belongs in the same folder. The mileage calculator explains the difference between an allowance rate and a self-employed vehicle claim. It does not value the van, and it does not tell you whether to include it in the sale.

Related guides and tools

• How much is my small business worth?
• Records buyers want when you sell
• Sales tax calculator
• GST/HST registration checker
• Mileage and vehicle expense calculator
• Getting started with the bookkeeping tracker

FAQ

This guide is for general information only. It is not tax, legal or accounting advice and not a complete guide to selling a business. Rules depend on your situation. Confirm with the Canada Revenue Agency or a qualified professional before you act.