Goodwill is the intangible value of a business above its identifiable net assets, reputation, customer relationships, brand, that arises when one business buys another for more than book value.
Goodwill appears when a business is purchased for more than the fair value of its identifiable assets less liabilities. That premium reflects things not on the balance sheet, an established customer base, brand, location, assembled workforce. It is recorded as an intangible asset by the buyer.
For accounting, goodwill is tested for impairment (or amortized under ASPE). For tax, purchased goodwill goes into CCA Class 14.1 and is deducted at 5% on a declining balance. Goodwill you build yourself is never recorded; it only appears through an acquisition.
You buy a competitor for $500,000 when its identifiable net assets are worth $350,000. The $150,000 premium is recorded as goodwill and, for tax, deducted over time through CCA Class 14.1.
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