Do You Pay GST When Selling a Business in Alberta?

You have agreed a price for your Alberta business, and now someone asks whether GST is added on top. The answer depends on what is being sold, who is buying, and whether you and the buyer make a particular tax election.

This article explains the basic GST rules for selling a business or part of one, how the going-concern election works, and the situations where it does not help. Your accountant and lawyer should confirm how it applies to your sale.

This article covers the law of Alberta.

Does GST apply to the sale price?

Alberta has no provincial sales tax, so the only sales tax in play is the federal GST, which is 5% in Alberta. When you sell a business without making an election, each property and service in the deal is treated as a separate supply, and part of the price is allocated to each one. GST can then apply to the taxable parts.

That means a single headline price can hide several different tax treatments. Equipment, inventory, goodwill and other items may each be looked at on their own, which is why the purchase agreement usually allocates the price among them.

When the business-assets rule applies

The special rule in Excise Tax Act s.167(1) 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. A sale of a few surplus items does not fit this description. A sale of the operating business, with what the buyer needs to keep running it, is the kind of deal the rule is aimed at.

How the going-concern election works

The going-concern exemption works through a joint election by the seller (the supplier) and the buyer (the recipient). It is made in the prescribed form with the prescribed information, and if it is valid, no tax is payable on the supplies under the agreement. The CRA form is GST44, called 'GST/HST Election Concerning the Acquisition of a Business or Part of a Business'.

If the buyer is a registrant, the buyer 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. Check the form's current filing instructions rather than relying on memory.

A separate rule in Excise Tax Act s.167(2) covers an estate that transfers a deceased person's business property to a beneficiary who is a registrant. No tax is payable if the property was used in the deceased's business immediately before death, the transfer follows the will or succession laws, the beneficiary takes it for commercial activities, and the estate and beneficiary jointly elect.

When the election does not apply or tax still applies

• No election is available where the seller is a registrant and the buyer is not a registrant.
• Even with a valid election, tax is still payable on a taxable service the seller will render.
• Tax is still payable on a taxable lease, licence or similar supply of property.
• Where the buyer is not a registrant, tax is still payable on a taxable sale of real property.

Because of these carve-outs, a deal that looks fully exempt can still have a taxable piece. Spotting it before closing is far easier than correcting it afterwards.

Financing and searches that often come up in a sale

Buyers sometimes look at the CSBFP to help fund a purchase. The maximum financing is $1.15 million in total, made up of up to $1 million in term loans and up to $150,000 in lines of credit, and the borrower and lender negotiate the actual amount. It can finance the eligible assets of an existing business, capped at the lower of the purchase price or the appraised value of those assets. It does not finance share purchases or assets acquired by a holding company, so a share purchase of an Alberta company cannot be funded this way. The registration fee is 2% of the total loan amount and can be financed as part of the loan.

Buyers also tend to run registry searches before closing:

• Alberta Corporate Registry searches are requested through a registry agent, and can show the registration date, owners, directors and legal addresses.
• Personal Property Registry searches can be run by individual debtor name, business debtor name, serial number, registration number and other types, each requested on a Search Request form at a registry agent office in Alberta.
• A Personal Property Registry search returns an exact match, an inexact match, no match, or both exact and inexact matches.

What to do next

• Confirm whether you and the buyer are both GST registrants.
• Describe exactly what is being sold and whether the buyer gets substantially all of what the business needs.
• Ask your accountant whether any lease, service or real property part of the deal stays taxable.
• Have the purchase agreement say who signs and files form GST44, and by when.
• Have a lawyer review the agreement so the tax wording matches your plan.

Frequently asked questions