The Bulk Sales Act was fully repealed in Ontario in 2017, eliminating the need for bulk sales affidavits. However, buyers must still obtain a CRA Tax Clearance Certificate and a WSIB Section 22 Certificate to avoid legally inheriting the seller’s unpaid corporate debts.
Buying the assets of an established business is an exciting opportunity, but it presents unique legal traps. Historically, if you purchased all the equipment, inventory, and goodwill of a business in Ontario, you had to meticulously comply with the Bulk Sales Act. This old law required buyers to ensure the seller’s creditors were paid off before the deal closed, otherwise, the buyer could be sued by those creditors.
Today, the landscape has modernized. Whether you are buying a popular restaurant in London, a fleet of transport trucks in Brampton, or a dental clinic in Toronto, you no longer file a bulk sales affidavit. However, do not be lulled into a false sense of security. The repeal of the Bulk Sales Act did not eliminate successor liability. Provincial and federal authorities have powerful statutory rules to collect debts. If you fail to secure specific clearance certificates from the Canada Revenue Agency (CRA) and the Workplace Safety and Insurance Board (WSIB), the government will force you to pay the seller’s unpaid taxes out of your own pocket. 💼
Step-by-Step Process for Buying Business Assets Safely in Ontario
To safely finalize an asset purchase agreement today, your corporate law firm must execute a series of mandatory government searches and clearance requests. Here is the standard process for protecting a buyer.
Step 1: Recognizing the Repeal of the Bulk Sales Act
It is important to understand that as of March 22, 2017, the Bulk Sales Act no longer exists in Ontario. Some outdated legal templates or inexperienced advisors might still insist on drafting a “Bulk Sales Affidavit.”
Your first step is to discard those old procedures. Instead of worrying about general trade creditors suing you under the repealed act, your focus must shift entirely to government agencies and secured lenders. The government still wields “super-priority” powers that can easily disrupt your new business. 📝
Step 2: Securing a Provincial Tax Clearance
Under the Ontario Retail Sales Tax Act, a buyer can be held perfectly liable for any retail sales tax the seller failed to remit. To block this liability, your lawyer must request a clearance certificate from the Ontario Ministry of Finance.
This certificate officially proves that the seller’s retail sales tax accounts are in good standing up to the date of the sale. If the Ministry refuses to issue the certificate because taxes are owed, the buyer is legally permitted (and advised) to deduct the owed amount directly from the final purchase price to pay the Ministry themselves. 💰
Step 3: Obtaining a WSIB Section 22 Clearance Certificate
If the business you are buying employs workers, you are exposed to significant risk under the Workplace Safety and Insurance Act. Section 22 of the Act clearly states that a buyer is responsible for the seller’s unpaid WSIB premiums unless a clearance certificate is obtained.
Your law firm will submit a Section 22 request to the WSIB before the closing date. If the seller has outstanding injury claims or unpaid premiums, the certificate will be denied. This is an absolute mandatory step for buying manufacturing plants, construction firms, or any labour-intensive operation in Ontario. 🚨
Step 4: Conducting Comprehensive PPSA Searches
Even though general creditors cannot use the Bulk Sales Act anymore, secured creditors certainly have rights. The Personal Property Security Act (PPSA) is the registry where lenders register liens against business assets like tractors, ovens, or servers.
Your legal team will run a detailed PPSA search against the seller’s corporate name. If a bank has a registered lien on the pizza ovens you are trying to buy, that lien stays with the ovens. If the seller defaults on their bank loan post-closing, the bank will legally repossess your new equipment. All PPSA liens must be discharged by the seller prior to closing. 🔒
Step 5: Drafting Strict Indemnification Clauses
Because government clearance certificates can take months to arrive, deals often close before the paperwork is fully finalized. To manage this reality, buyers rely on indemnification clauses.
A well-drafted Asset Purchase Agreement will contain a strict holdback provision. The buyer retains a portion of the purchase price in trust until the final CRA and WSIB certificates are physically delivered. If a surprise tax bill arrives, the buyer uses the held-back funds to satisfy the debt without suffering a personal loss. ⚖️
How Much Does Due Diligence Cost in Ontario?
Failing to secure proper clearances can cost you thousands in inherited debts, making the initial legal fees a highly worthwhile investment.
- WSIB Section 22 Clearance: The WSIB issues these clearance certificates for free.
- PPSA Lien Searches: Executing a PPSA search through the provincial registry costs approximately $8 to $20 CAD per name searched.
- Retail Sales Tax Clearance: The Ministry of Finance generally does not charge a filing fee to issue this standard clearance.
- Legal Representation: Hiring a corporate lawyer in Ontario to conduct due diligence, run searches, and draft the protective holdback clauses typically costs between $350 and $700 CAD per hour.
| Required Clearance | Issuing Agency | Risk if Ignored |
|---|---|---|
| Section 22 Certificate | WSIB Ontario | Successor liability for unpaid worker premiums |
| Retail Sales Tax Clearance | Ministry of Finance | Personal liability for unremitted provincial taxes |
| PPSA Discharge | Ontario ServiceOntario | Repossession of business equipment by banks |
Keep in mind that a federal CRA Section 116 clearance certificate may also be required if the seller is an absolute non-resident of Canada, which carries heavy tax implications.
How Long Does the Process Take?
Generating a WSIB clearance certificate is generally fast and can often be confirmed online within 2 to 5 business days if the seller’s account is clean. PPSA searches provide instant results. However, obtaining a formal tax clearance from the Ontario Ministry of Finance or the CRA can be notoriously slow, frequently taking anywhere from 30 to 90 days. This is exactly why law firms utilize escrow holdbacks to close deals quickly while waiting for the final government paperwork to arrive in the mail.
Frequently Asked Questions (FAQ)
Is the Bulk Sales Act still active in other Canadian provinces?
Ontario fully repealed the Bulk Sales Act in 2017, and most other provinces have also eliminated it. However, if you are conducting cross-border transactions or buying assets in certain other jurisdictions, your law firm must check local provincial rules.
What happens if I buy a business and WSIB premiums are owed?
Under Section 22 of the Workplace Safety and Insurance Act, if you do not secure a clearance certificate, the WSIB can legally force you, the new owner, to pay the previous owner’s outstanding workplace safety premiums.
Can trade creditors sue me if the Bulk Sales Act is gone?
Generally, unsecured trade creditors (like standard suppliers) cannot sue the buyer of assets just because the business was sold. Their legal contract remains with the seller’s corporation. They must pursue the seller for unpaid invoices.
Why does a bank have a lien on a company vehicle?
If the seller financed the purchase of a company vehicle, the lender registers a security interest under the PPSA. This lien travels with the physical vehicle. If you buy the truck without ensuring the lien is discharged, the bank still holds the right to repossess it.
Does a Share Purchase Agreement require these same clearances?
When you buy shares, you inherit the entire corporation, including all its secret liabilities. Due diligence is actually much more intense in a share purchase. Clearances are verified, but the legal mechanisms are fundamentally different than an asset purchase.
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