- A joint section 167 election can mean no GST is payable on the supplies in a business sale, if the election is valid.
- The election is not available where the seller is a registrant and the buyer is not.
- Even with a valid election, GST can still apply to some items, such as taxable leases and services the seller will still provide.
When you buy or sell a business in Alberta, the price is often made up of equipment, inventory, goodwill and other assets. Without special treatment, GST can apply to the taxable parts of that sale, which can mean a large tax bill at closing and a cash-flow problem for the buyer.
The Excise Tax Act has a joint election in section 167 that can remove that tax in the right circumstances. This article explains when it applies, who must sign, what it does not cover and what to confirm before closing. It is general information, and an accountant or lawyer should review your actual deal.
This article covers the law of Alberta.
When the business-assets rule applies
The rule applies where a supplier sells a business or part of one, and the buyer gets all or substantially all of the property that can reasonably be regarded as necessary to carry on that business. In plain words, the buyer needs to be getting a business that can actually operate, not just a few items from it.
Without an election, each property and service in the sale is treated as a separate supply, with part of the price allocated to each one. GST at 5% in Alberta can then apply to the taxable parts. Alberta has no provincial sales tax, so GST is the only sales tax to think about.
Whether a particular sale meets the "all or substantially all" test depends on the facts. A buyer who leaves behind key equipment or does not take over the premises, for example, may have a harder time showing it. That is a good question for your accountant early on.
How the joint election works
The exemption works through a joint election made by the seller and the buyer, in the prescribed form and with the prescribed information. If the election is valid, no tax is payable on the supplies under the agreement.
The CRA form for this election is GST44, called GST/HST Election Concerning the Acquisition of a Business or Part of a Business. Both sides are involved, so it helps to agree early that the election will be made and who will complete the form.
- Both the seller and the buyer must make the election together.
- The election must be made in the prescribed form with the prescribed information.
- If it is valid, no tax is payable on the supplies under the agreement.
When the election is not available, or does not cover everything
The election cannot be used where the seller is a GST registrant and the buyer is not. A buyer who is not yet registered should talk to an accountant before signing an agreement that assumes the election will apply.
Even when the election is valid, some items stay taxable. The table below sets out the main ones.
| Item | Still taxed despite a valid election? |
|---|---|
| A taxable service the seller will render | Yes, tax is still payable |
| A taxable lease, licence or similar supply of property | Yes, tax is still payable |
| A taxable sale of real property where the buyer is not a registrant | Yes, tax is still payable |
There is also a separate rule for estates. No tax is payable when an estate transfers a deceased person's business property to a beneficiary who is a registrant, but the property must have been used in the deceased's business immediately before death, the transfer must follow the will or succession laws, the beneficiary must take it for commercial activities, and the estate and beneficiary must jointly elect.
Filing the election and timing
If the buyer is a registrant, it must file the election with the Minister by the filing deadline for its first reporting period in which tax would otherwise have become payable on the supply. The Minister may accept a later date if the buyer applies for it.
Your reporting period depends on how your business files its GST returns, so the actual calendar date will differ from business to business. Check the filing instructions that come with Form GST44 and confirm the date with your accountant rather than relying on a rule of thumb.
What to do next
- Confirm whether the buyer is, or will be, a GST registrant before closing.
- Ask your accountant whether the sale meets the all or substantially all test.
- Put a clause in the purchase agreement saying that both sides will sign and that the buyer will file Form GST44.
- List any leases, licences or ongoing services in the deal, since these may still carry GST.
- Diarize the filing deadline for the buyer's first reporting period and keep a copy of the filed form.
A lawyer can build the election into the purchase agreement so the allocation of price and the tax treatment match, and an accountant can confirm the GST position.
Frequently asked questions
Does GST apply when I buy a business in Alberta?
It can. Without an election, each property and service in the sale is treated as a separate supply, and GST at 5% can apply to the taxable parts. A valid section 167 election can remove the tax on the supplies under the agreement.
Which CRA form do we use?
The form is GST44, GST/HST Election Concerning the Acquisition of a Business or Part of a Business. The seller and the buyer make the election jointly.
Can a buyer who is not a GST registrant use the election?
Not where the seller is a registrant and the buyer is not. Speak to an accountant before closing about registering or restructuring the deal.
Who files the election and by when?
If the buyer is a registrant, it files the election with the Minister by the filing deadline for its first reporting period in which tax would otherwise have become payable. The Minister may accept a later date on the buyer's application.
Sources
- Excise Tax Act, s.167 (Justice Laws) — Justice Laws (federal)
- CRA – Form GST44 — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,148.95, tax included. Third-party fees are extra.