- GST/HST generally applies to the sale of most business assets in Ontario, the same as it would to any other taxable supply.
- Under section 167 of the Excise Tax Act, the vendor and purchaser can jointly elect to have no GST/HST apply to a qualifying sale of a business or part of a business.
- The law does not set a fixed percentage that automatically qualifies or disqualifies a sale — whether a purchaser is acquiring "all or substantially all" of the property necessary to…
Selling a business's assets normally means charging HST the same as any other taxable sale — which, for a deal worth real money, can mean the buyer needing to hand over a significant amount of cash at closing just to cover tax, even though it flows back as an input tax credit later. Federal tax law provides a specific mechanism to avoid that cash-flow problem in qualifying deals: the section 167 joint election under the Excise Tax Act.
This article explains how the general HST rule applies to a business asset sale, when the election is available, and what buyers and sellers need to do to use it properly.
The General Rule: HST Normally Applies
GST/HST generally applies to the sale of most business assets in Ontario, the same as it would to any other taxable supply. As of mid-2026, the harmonized rate in Ontario is 13% — always verify the current rate before relying on it, since tax rates can change. Without a valid election in place, the seller is expected to charge HST on the sale, and the buyer pays it (typically recoverable later as an input tax credit if the buyer is a registrant using the assets in a commercial activity).
For many business asset sales, that HST amount can be substantial relative to the purchase price, which is exactly the cash-flow problem the section 167 election is designed to solve.
What the Section 167 Election Does
Under section 167 of the Excise Tax Act, the vendor and purchaser can jointly elect to have no GST/HST apply to a qualifying sale of a business or part of a business. If the election is valid, the transaction closes without HST changing hands on the covered assets at all — no tax is charged, and none needs to be recovered later.
This isn't automatic. It requires:
- A qualifying supply — broadly, the purchaser must be acquiring ownership, possession, or use of all or substantially all of the property necessary for the purchaser to be capable of carrying on the business (or the relevant part of the business) as a business.
- A joint election — both the vendor and the purchaser must agree to make the election together; one side cannot elect on its own.
The "All or Substantially All" Test
This is the part of the analysis that requires real judgment rather than a checklist. The law does not set a fixed percentage that automatically qualifies or disqualifies a sale — whether a purchaser is acquiring "all or substantially all" of the property necessary to carry on the business depends on the specific assets involved and the nature of the business, not a bright-line number. Because there is no fixed threshold, this is exactly the kind of question that needs to be assessed on the actual facts of your transaction, with your lawyer and accountant, rather than assumed based on a general sense of "most" of the assets changing hands.
What the Election Covers — and What It Doesn't
- The election applies to the qualifying business assets covered by the sale. It does not automatically extend to everything a deal might involve.
- If the asset sale includes real property, Ontario land transfer tax applies separately to the value attributed to that real property — the section 167 election affects GST/HST treatment, not land transfer tax, and the two need to be considered independently.
- A share sale is treated differently from the outset: selling shares is generally an exempt supply for GST/HST purposes, meaning no GST/HST applies to the sale of the shares themselves, regardless of section 167. The election is specifically an asset-sale tool.
Filing Requirements
To use the election, the vendor and purchaser complete and file the prescribed joint election in the form and manner required by the Canada Revenue Agency, generally in connection with the applicable GST/HST reporting period. Because the specifics of the required filing and any deadlines can change, and because getting it wrong can mean the seller is treated as having failed to collect tax that was actually due, this filing should be handled by, or closely reviewed with, your accountant or tax advisor as part of closing — not treated as an afterthought.
Quick Reference
| Scenario | GST/HST treatment |
|---|---|
| Asset sale, no election made | HST generally applies to the taxable assets sold |
| Asset sale, valid section 167 election made | No HST applies to the qualifying assets covered by the election |
| Share sale | Generally an exempt supply — no HST on the shares regardless of election |
| Real property included in an asset sale | Land transfer tax applies separately, regardless of the GST/HST election |
Frequently asked questions
Can either the buyer or the seller make this election alone?
No. Section 167 requires a joint election — both parties must agree and file it together. One side cannot elect unilaterally to avoid charging or paying HST.
Does the election apply if only part of a business is being sold?
It can, if that part of the business meets the "all or substantially all of the property necessary to carry on the business" requirement on its own. This is a fact-specific determination, and there's no shortcut around assessing it properly for the specific assets involved.
What happens if the election is later found to be invalid?
If the sale didn't actually qualify, the seller may be treated as having been required to collect and remit HST on the transaction after all, which can create an unexpected liability for the seller (and a corresponding input tax credit question for the buyer). This is one of the reasons the qualifying test should be reviewed carefully before relying on the election, not assumed.
Does the election affect Ontario land transfer tax if real estate is part of the deal?
No. The section 167 election is a GST/HST mechanism only. Where an asset sale includes real property, Ontario land transfer tax still applies to the value attributed to that property, entirely separate from whether the GST/HST election was made.
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