Do You Pay GST When Buying a Business in BC? Assets vs Shares

Buying a business in British Columbia often comes with a surprise: a large purchase price can look like it carries a large GST bill. Whether it does depends heavily on how the deal is built, because buying the shares of a company and buying its assets are treated very differently.

This article explains the basic GST difference between a share purchase and an asset purchase, how the joint election on Form GST44 works, where it does not help, and what to sort out before closing. It is general information, and your accountant and lawyer should confirm how it applies to your deal.

This article covers the law of British Columbia.

Share purchase or asset purchase: why it matters for GST

In a share purchase, you buy the owner's shares in the corporation and the corporation itself carries on as before. Share purchases are generally not subject to GST/HST.

The other side of that is that a change in share ownership does not change the tax values of the corporation's assets, and you take the company with its history and liabilities. You avoid GST on the purchase, but you also inherit what the company has already done.

In an asset purchase, you buy the business's property directly, such as equipment, inventory and goodwill. This is the type of deal where GST can come up, unless the buyer and seller use the election described below.

The section 167 election on Form GST44

Under section 167 of the Excise Tax Act, when a supplier sells a business or part of one, the buyer and seller may jointly elect so that no GST/HST is payable on the sale. The election is made on Form GST44.

The main condition is size. The buyer must acquire all or substantially all, meaning at least 90%, of the property needed to carry on the business. Buying only a few useful pieces of equipment from an owner will not usually meet that test.

Timing also matters. A buyer who is a GST/HST registrant files the election by the due date of its first relevant GST/HST return. Because both sides join in the election, it is best to agree on it in the purchase agreement rather than leave it until after closing.

When the election does not solve the problem

The election has limits. It is not available where the seller is a registrant and the buyer is not.

Even when the election is made, GST/HST can still apply to certain services, leases and licences. For buyers who are not registrants, it can also still apply to sales of real property.

Allocation, goodwill and other tax points

In an asset purchase, the price must be allocated to each asset at fair market value, and the remaining balance is attributed to goodwill. Since January 1, 2017, goodwill is depreciable property in CCA Class 14.1, claimed at 5%.

The allocation should match what the seller reports. If you and the seller use different numbers, that can lead to questions later, so many buyers settle the allocation in writing before closing.

A change of owners may require a new CRA business number and program accounts. For corporations, the CRA needs the correct name and social insurance number of each director.

PST is a separate tax with its own rules. For example, on a PST asset sale, goodwill, accounts receivable, franchise fees, inventory, real property and shares of a business are non-taxable, and inventory is exempt if the buyer gives a PST number or a Certificate of Exemption – General (FIN 490). See the separate article on PST when buying a business.

What to do next

• Confirm early whether the deal will be a share purchase or an asset purchase, and ask your accountant how GST/HST applies to each.
• If it is an asset deal, work out whether you will acquire at least 90% of the property needed to carry on the business.
• Find out whether the seller and you are each GST/HST registrants, since the election is unavailable if the seller is and you are not.
• Build the Form GST44 election and the filing timing into the purchase agreement.
• Agree a written price allocation that matches what the seller will report.
• Check whether any services, leases or licences in the deal could still attract GST/HST.
• Ask about a new CRA business number and program accounts after closing.

Because the choice between shares and assets affects liabilities as well as tax, a lawyer and an accountant should review the structure before you sign.

Frequently asked questions