A Canadian Asset Purchase Agreement is a legal contract whereby a buyer acquires specific assets from a seller's business rather than purchasing the business entity itself (which would be a share purchase). In an asset purchase, the buyer selects which assets to acquire and which liabilities to assume, providing greater control over what is being purchased and avoiding unwanted obligations or contingent liabilities.

Asset purchases in Canada involve important tax considerations under the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)). Buyers generally prefer asset purchases because they can claim capital cost allowance (CCA) on the stepped-up cost base of the acquired assets, creating tax deductions that are not available in a share purchase. The purchase price must be allocated among the different asset classes for CCA purposes and reported to the Canada Revenue Agency (CRA).

The Excise Tax Act provides a significant tax relief mechanism through section 167, which allows both parties to jointly elect (using CRA Form GST44) to have no Goods and Services Tax / Harmonized Sales Tax (GST/HST) payable on the transaction, provided both are GST/HST registrants and the buyer is acquiring all or substantially all (at least 90%) of the property reasonably needed to carry on the seller's business. This election can save the buyer significant upfront tax costs. In certain provinces, particularly Ontario, the Bulk Sales Act (R.S.O. 1990, c. B.14) may apply to asset sales, requiring the seller to provide a statutory declaration and statement of creditors to protect against claims from the seller's unpaid creditors.

A Canadian Asset Purchase Agreement is needed when a buyer wishes to acquire specific business assets such as equipment, inventory, intellectual property, customer lists, goodwill, or commercial leases without taking over the entire corporate entity. This structure is preferred when the buyer wants to avoid inheriting unknown liabilities, pending litigation, environmental obligations, or other contingent risks that come with a share purchase.

Asset purchases are common when a buyer is acquiring a business division or product line rather than an entire company, when the seller's corporate structure has accumulated liabilities that the buyer does not wish to assume, or when the buyer wants to obtain a stepped-up cost base for the assets for capital cost allowance (CCA) purposes under the Income Tax Act. They are also used when the seller's shares are not available for purchase, when multiple buyers are interested in different portions of a business, or when the transaction involves a receivership or bankruptcy sale.

The agreement is essential for documenting the specific assets being transferred, the purchase price allocation, GST/HST treatment, compliance with provincial bulk sales legislation where applicable, and the representations and warranties each party makes regarding the transaction. Without a properly drafted asset purchase agreement, the parties risk disputes over which assets are included, tax consequences, and potential claims from the seller's creditors. If the transaction involves assets in Quebec, additional considerations under the Civil Code of Quebec apply, including specific rules about the sale of an enterprise as a going concern.

A valid Canadian Asset Purchase Agreement must clearly identify both parties by their full legal names and addresses, and specify whether each party is an individual, corporation, partnership, or sole proprietorship. The agreement must include the effective date and a detailed description of all assets being purchased, categorized as tangible (equipment, inventory, fixtures) or intangible (goodwill, trademarks, licences, customer lists, contracts).

The purchase price must be stated in Canadian dollars (CAD) and the agreement should specify the payment method (lump sum or instalments), deposit terms if applicable, and the closing date and location. The purchase price allocation among asset classes is critical for CCA purposes under the Income Tax Act and must be agreed upon by both parties. If both parties are GST/HST registrants and the section 167 election applies, the agreement should include the GST/HST election provisions and both parties' registration numbers for filing Form GST44.

Comprehensive representations and warranties from the seller are essential, including confirmation that the seller has clear title to the assets, authority to sell, has paid all applicable taxes, and that there are no pending legal proceedings. If the Ontario Bulk Sales Act or equivalent provincial legislation applies, the agreement must require the seller to provide a sworn statement of creditors. Non-solicitation and confidentiality clauses should be included to protect the buyer's investment. The governing law clause must specify the applicable Canadian province. The agreement should provide for execution in counterparts and include a severability clause.