When a corporation or individual taxpayer acquires a business, goodwill (an intangible asset) will be created if the purchaser pays more than the agreed-upon value of the fixed assets acquired.
Goodwill is calculated as the total cost of the acquired business minus the agreed-upon value of the assets acquired minus liabilities assumed. Prior to 2002, for accounting purposes a portion of goodwill was required to be amortized, or written off, by a business on their income statement every year. Beginning in 2002, the value of goodwill on the balance sheet need not be written down unless it is determined that there has been an impairment in the value of the goodwill.
The tax treatment of goodwill, or eligible capital property, was changed by the Federal 2016 budget. See the Eligible Capital Property page for more information.