When you purchase the assets of a business, you must allocate the purchase price. It is advantageous to allocate the purchase price to items which provide the higher write off. For example, only 50% of the goodwill in Canada can be amortized at 7% per annum whereas allocation to a fixed asset will provide 100% write off at possibly a faster depreciation rate. Often, buyers and sellers do not record the allocation of the purchase price in the purchase and sales agreement. They will allocate it after the purchase of the business has closed. Rarely have I seen buyers and sellers agree to an asset allocation after the transaction has closed. Canada Revenue Agency wants both buyer and seller to treat the purchase and sales agreement the same. They do not want the seller to record goodwill and the buyer to record fixed assets. If Canada Revenue Agency audits the purchase and sales agreement and finds that buyers and sellers did not treat the sale the same way, they will amend one or both tax returns and charge interest on any deficient tax payments.
Keep in mind, the allocation to certain assets may be advantageous to the buyer and detrimental to the seller. If there is real estate involved and the seller has owned it for many years, they will have to pay tax on the recaptured depreciation. If the asset is owned for a long time, the amount of tax can be substantial. Buyers want to allocate to assets which yield the greatest tax savings and sellers want to allocate to assets which yield the lowest amount of tax.
In order to avoid tax problems with Canada Revenue and the IRA make sure you come to an agreement on the allocation of assets because it is easier to get agreement prior to the closing of the purchase and sales agreement then.