When you are considering becoming a business owner, you have the option of buying an existing business or starting a new one. The option you choose will affect how you will account for the purchase of the business assets for income tax purposes.

When you buy a business, you generally pay a set amount for the entire business. In some cases, the sale agreement sets out a price for each asset, a value for the inventory of the business and, if applicable, an amount that can reasonably be attributed to goodwill.

If the individual asset prices are set out in the sale agreement, and the prices are reasonable, then you could use these prices to calculate your claim for capital cost allowance (CCA).

If the individual asset prices are not set out in the contract, you have to decide how much of the purchase price you should reasonably attribute to each asset, how much to inventory, and how much, if any, to goodwill. These amounts should coincide with the amounts the vendor determined when reporting the sale.

The amount you attribute to each asset should be its fair market value (FMV). You should attribute to goodwill the balance of the purchase price that remains after you attribute the FMV to each asset and to inventory.