Do You Pay GST When Buying a Business in BC? The Section 167 Election

If you are buying or selling the assets of a business in British Columbia, GST is one of the first tax questions to come up. A business sale usually moves many things at once: equipment, inventory, goodwill, customer accounts and sometimes a building. Without a plan, tax on all of that can become a large and unexpected closing cost.

The Excise Tax Act has a special election for this situation, found in section 167. This article explains in plain terms when it can apply, who files it, when it is due, and where it does not help. It also sets GST beside BC's PST, because the two taxes treat the same assets differently.

This article covers the law of British Columbia.

What the section 167 election does

Where a buyer acquires all or substantially all of the property needed to carry on the business, the seller (the supplier) and a buyer that is a GST registrant may jointly file a prescribed election. If they do, no GST is payable on the supplies made under the agreement.

In plain words, the election lets the parties treat the transfer of a going business as a single transaction without GST being charged on the pieces. It is a choice the two sides make together, not something that happens automatically because you bought a business.

When the election is available

The election is tied to the nature of the deal and to the buyer's status. Two points matter most:

• The buyer acquires all or substantially all of the property needed to carry on the business.
• The buyer is a GST registrant, and the seller and buyer file the election jointly.

Buying only a few items, such as a truck and some tools, is a different situation from buying everything needed to keep operating the business. Whether a particular purchase meets the "all or substantially all" wording depends on the facts, so it is worth confirming with a lawyer or accountant before you rely on it.

The election is built around the buyer acquiring the property needed to carry on the business. Whether and how it applies if you are buying shares instead depends on your situation, so it is worth confirming with a lawyer or accountant.

Who files it and when

The election is filed jointly by the seller and the buyer. The buyer, as the recipient, files it by the due date of its GST return for the first reporting period in which tax would otherwise be payable on the sale.

That deadline is tied to the buyer's own reporting schedule, so the date will differ from one buyer to the next. Ask your accountant to confirm the exact date and to make sure it is tracked as part of the closing.

• Confirm before closing that the buyer is registered for GST.
• Have the purchase agreement say that the parties will make the election and who will complete the paperwork.
• Note the due date of the buyer's GST return for the first period in which tax would otherwise be payable.
• Keep a copy of the filed election with the closing records.

Where the election does not help

Even in a genuine business sale, the election has limits. It is not available where the seller is a registrant and the buyer is not. Tax also still applies in several situations, shown below.

If your deal includes a building or land, or if the seller will keep providing services to the buyer after closing, ask how those parts are taxed separately from the rest of the sale.

How PST differs, and what to do next

PST is a separate BC tax with its own rules about what it covers. PST applies to taxable assets such as affixed machinery, equipment, computer hardware and supplies. It does not apply to goodwill, inventory, accounts receivable or real property. PST also does not apply to the sale of shares of a business.

So an asset purchase can involve GST questions on one set of items and PST on another. A price allocation that lists each category of asset helps both sides see what is taxable.

• Confirm whether you are buying assets or shares, since the tax treatment differs.
• Check that the buyer is a GST registrant before relying on the election.
• Decide whether the buyer is acquiring all or substantially all of the property needed to carry on the business.
• Identify any services, leases, licences or real property in the deal, which may be taxed even if the election is made.
• Prepare a written allocation of the price among the assets, so PST can be worked out on equipment and hardware.
• Ask a lawyer or accountant to confirm the election and its filing date before closing.

Frequently asked questions