Buying a business for $5,000
By Hank Bulmash | March 20, 2011
I would like to buy a business for $5,000 CAD. Is this $5,000 deductible as an expense? How do you treat this $5,000 on the books?
Hank Bulmash answered:
It's impossible to know given the sparse information provided, but most likely the $5,000 purchase price of the business is for an asset.
It might be for the shares of a corporation owning the business, it which case the $5,000 would not be deductible.
It might be for the purchase of fixed assets such as furniture and equipment. In that case the purchase price would be depreciated based on rules in the Income Tax Act which deals with all types of assets. Different assets are depreciated over different periods.
Or, the $5,000 might be related to an intangible asset such as good will or a franchise right or a leasehold right. Intangible assets are amortized over time based on the actual type of asset. Those amortization rules are also found in the income tax act.