Anonymised, illustrative composite. The fixed-asset schedule priced the shop's largest press at $410,000. A routine registry search found the shop did not own it.
At a glance
A buyer's proposed asset purchase agreement for a precision machine shop listed $1,850,000 of production equipment as purchased assets, appraised line by line off the shop's own fixed-asset register. The single largest item was a stamping press appraised at $410,000, described in the seller's materials as the machine responsible for the shop's highest-margin work — the reason the buyer's thesis for the acquisition existed in the first place.
The purchase was structured as an asset deal rather than a share deal, on the buyer's usual rationale for a small manufacturing target: a clean start on the fixed-asset base, no exposure to the corporation's pre-existing liabilities, and access to Canada Small Business Financing Program term debt against the equipment the buyer would actually be acquiring.
A standard closing diligence step — a search against the corporation in the province's personal property registry — turned up an active registration against the press naming its original equipment lessor, not the target corporation, as the party with the registered interest. Cross-checked against the shop's own equipment file, the press was under a lease with 34 months and $9,200 in monthly payments remaining. It had never been the target's asset to sell.
Left uncorrected, the asset purchase agreement would have sold the buyer a machine the seller did not own, at $410,000 of a $1,850,000 purchase price. Worse, the CSBFP financing the buyer had modelled against that $410,000 line item would itself have been financing an asset with no valid title behind it — a defect a lender's own closing conditions would eventually have caught, just later and more expensively than a registry search caught it here.
$1,850,000 (original purchased-assets schedule) − $410,000 (leased press) = $1,440,000, the corrected purchased-assets figure. Remaining lease obligation on the press: 34 months × $9,200 = $312,800.
The fix was to exclude the press from the purchased-assets schedule entirely and negotiate the lessor's consent to assign the lease to the buyer as a condition of closing, rather than asking the seller to buy the machine out. That raised a real, separate question for the deal's GST/HST treatment: Excise Tax Act s.167(1) (marginal note Supply of assets of business) makes a joint election available where, under the agreement for the supply, “the recipient is acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business.” The three words the shorthand usually drops — ownership, possession or use — are the ones that decide this file.
The test is about the buyer's capability to carry on the business, not literal title to every asset on the floor. Assigning the lease put the buyer in the same operating position as owning the press outright — use of every machine necessary to run the shop — so the s.167(1) election remained available on the corrected structure, with the assigned lease itself forming part of what was supplied under the agreement.
Two conditions on the election were confirmed rather than assumed. It is unavailable where the supplier is a registrant and the recipient is not (s.167(1)(b)), and a registrant recipient must file it by the due date of the return for its first reporting period in which tax would otherwise have become payable (s.167(1.1)). And the election is not a blanket exemption: s.167(1.1)(a)(ii) expressly carves out “a taxable supply of property by way of lease, licence or similar arrangement,” so GST/HST continues to apply to the monthly lease payments on the assigned press even though it relieves the tax on the purchased assets.
Had the deal closed on the original $1,850,000 schedule without the registry search, the buyer would have paid $410,000 for a machine it never actually owned. Equipment leases commonly carry anti-assignment or change-of-control acceleration clauses; if this lessor had simply refused to consent to an assignment after closing, the buyer could have faced the immediate loss of use of its highest-margin machine while the seller — now with no ongoing business — remained the party contractually liable for the $312,800 in remaining payments.
The CSBFP financing angle made the timing worse, not better. A term loan drawn against a $410,000 asset the borrower does not own would not survive the lender's own final conditions, but by the time a lender's counsel caught it independently, the buyer could already be past the point where walking away from the whole transaction was realistic — discovering the defect during the shop's own diligence, before financing was finalized, was materially cheaper than discovering it at the lender's closing table.
The tell was on the fixed-asset register itself: the press's carrying cost was well below what a machine of its stated replacement value should show, consistent with an operating lease rather than an owned capital asset. A registry search before signing, not after, is what turns that kind of anomaly into a corrected schedule instead of a post-closing dispute.
A 30-minute call is enough to tell you whether a structuring or diligence gap like this one is sitting in your pipeline.
