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Legal Ease
Legal Ease, Lawyer
Category: Canada Tax
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Experience:  Lawyer
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I purchased a Rubber-Tire Backhoe in 2013 on my personal

Customer Question

Hi,
I purchased a Rubber-Tire Backhoe in 2013 on my personal credit for ~$52,800 + HST.
The HST was taken out as a seperate small loan to be paid within 3 months or so.
Then, I arranged for the monthly payments to come out of a seperate business account (which I am neither an owner nor employee of, I can't even sign cheques), and registered/insured the machine in this Business's name. The business has since that time paid all payments and HST and interest.
Flash to 2016, we have accumulated many hours on the machine and it has lost its transmission, which is a costly repair (maybe $10,000-$15,000). I have a potential buyer for this machine. There is still $30,785 remaining on the loan. The buyer wants to pay $15,000 + tax, to the business. I need to get he Lein off the backhoe for him to take it. I believe I have enough cash to make up the difference to pay the Lein.
Will this cause problems if $15,000+HST is deposited to the business account, and then a cheque for $15,000 is written from the business to the loan people, and ~$15,785 cash is also brought to the bank to make this Lein go away?
Submitted: 6 months ago.
Category: Canada Tax
Expert:  Legal Ease replied 6 months ago.

Thanks for your question.

Do you owe the HST to the seller of the backhoe?

Did they say you can pay off the debt and they would remove the lien?

Customer: replied 6 months ago.
Just to be clear, I am the Seller of the Backhoe now, I bought it in 2013 from a John Deere heavy equipment store through a loan with Scotiabank, so they got a lump sum from Scotiabank, and the debt was put on me personally. $52,800 & a seperate $6,864 loan for HST. I immediately arranged for the payments to come from a seperate business, including this HST, which has been paid, and $30,785 remains on the principle, in my personal name.Since I've found a buyer, I've told Scotiabank and they said they'd deposit so much on the principal and the rest into my personal account if there was any left.Now the amount I'm being offered is $15,000 (might be able to get $20,000), I haven't asked the bank how this would play out, but I was going to accept this plus HST to the business, then have a cheque written to me for this $15,000, and pay the lien off with that and some cash I have ...So I guess short answer is yes, I can pay off the debt and they'll remove the lien, just wondering if this cheque and cash split is going to cause trouble, mainly to the business is my concern
Expert:  Legal Ease replied 6 months ago.

I Know you are the seller now. I was referring to the seller you bought from.

I just don't see how this can be a problem.

You loan paid off all the money owing to John Deere including the sales tax.

So that means you are not in debt to anyone but the bank.

And if the bank agrees that all the debt will be paid off so they will remove the lien then you don't owe them any money.

And if you are asking about getting HST credit then it still flows through as you've paid the tax.

But you should speak to your accountant as you would have been writing the depreciation of this equipment off and the accountant may have some advice about how to document the sale.

Does that answer your question?

Please feel free to post back with any follow-up questions you may have. If you don't have any then I hope I have earned a 5 star rating but if you don't feel that I have please don't hesitate to reply back and let me know what more I can do to assist you. Finally, please know that even after you rate me I will be here for you and you can ask follow-up questions if you think of them later on at no further charge of course.

Customer: replied 6 months ago.
Makes sense - I have to ask my bookkeeper if he had this counted as an asset as well, and of course whether the depreciation was written off. I'm pretty sure it was.Plan is to take say $20,000 + $3,000 (HST) from buyer, pay $20,000 towards the loan (and the rest myself to remove the lien), and obviously the $3,000 goes to gov't as HST...I'm still just wondering if the total lien being paid off of $30,785 even though the sale was for less than that will raise any red flags - and how writing off depreciation would affect that...? Can you comment?
Expert:  Legal Ease replied 6 months ago.

Who would be looking at whether the lien was paid off and what red flags?

You paid all the tax and that is what matters.

It doesn't matter that you divided the loan up differently. That is between you and the bank.

But I don't know how your accountant handled this asset so you need to discuss that with your own accountant.

Expert:  Legal Ease replied 6 months ago.

Is there anything more I can help you with at this point in time?