Where goodwill comes from
BDC describes goodwill as the extra value a company gets from its brand, customer base and reputation. It appears on a balance sheet when one business buys another for more than the value of the identifiable assets acquired, such as equipment, inventory and receivables. The excess is the goodwill.
That is why a long-established business with loyal customers may show no goodwill at all. Unless someone has bought it, the reputation you have built over years is generally not recorded as an asset.
An illustrative example
Suppose a buyer pays $500,000 for a small Hamilton service business. This is illustrative only. The identifiable assets, such as equipment, supplies and receivables, are valued at $320,000, and the buyer assumes $40,000 of supplier debts. The net identifiable assets are $280,000, so $220,000 of the price is generally goodwill.
The seller’s own records may show none of that value. The number depends on how each asset and liability is valued, which is why a purchase agreement should state how the price is allocated.
How tax treats it
For income tax, the Canada Revenue Agency includes goodwill in Class 14.1, a capital cost allowance class with a 5% rate on a declining-balance basis. The class also covers certain other intangibles acquired after 2016. A claim is not automatic: the property must be used to earn business income, and the usual capital cost allowance limits and rules apply.
The tax result for the seller is a separate question. It depends on whether you sell assets or shares and on your structure, and any available reliefs depend on the facts. Ask your accountant to model the outcome before you agree on a price.
What to discuss with your accountant
Before buying, ask how the price will be split between goodwill and other assets, what supports each figure, and whether the books you are shown are reliable. Customer concentration, key-person risk and the quality of the records all affect how much goodwill is reasonable.
After closing, keep the purchase agreement, the allocation schedule and the valuations in your files, and ask how the goodwill will be reviewed in later years. Depending on the accounting framework your statements follow, goodwill may be amortized over time or carried at cost and reviewed for a drop in value, so ask which approach applies.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- BDC: GoodwillBDC
- BDC: Tangible and intangible assetsBDC
- Classes of depreciable propertyCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.