How Do You Make the GST44 Election When Buying a Business in Alberta?

When you buy a business in Alberta, the purchase price usually covers many things at once: equipment, inventory, goodwill, perhaps a lease. Each one could carry GST, which can add a large cost on closing day. The going-concern election is the tool that can remove that GST when the sale qualifies.

This article focuses on how the election works: when it is available, who makes it, what form is used, and who files it. It does not try to answer every question about whether GST applies to a sale. Your agreement, your registration status and the assets involved all matter, so a lawyer or accountant should confirm how this applies to your deal.

This article covers the law of Alberta.

What the election does and when it is available

The election sits in section 167 of the Excise Tax Act. It 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.

The election is made jointly by the seller and the buyer, in the prescribed form with the prescribed information. If the election is valid, no tax is payable on the supplies under the agreement.

In practical terms, this means the buyer needs to be getting a real, working business or a real part of one, not just a few chosen assets. Whether a particular purchase meets that test depends on the facts.

What happens without the election

Without an election, each property and service in the sale is treated as a separate supply, and the price is allocated to each one. GST, which is 5% in Alberta, can then apply to the taxable parts. Alberta has no provincial sales tax.

That is why the allocation of the purchase price matters when no election is made, because the taxable parts of the sale are the ones that can carry GST. How this affects cash flow at closing, and what each side must do about the tax, depends on your situation. An accountant can walk you through both sides.

Exceptions that catch buyers and sellers off guard

Two sets of exceptions are worth knowing before you rely on the election.

• The election is not 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.

So a valid election does not always mean zero GST on the whole deal. If your sale includes a transition service from the seller, a lease of premises or equipment, or land and buildings, ask how each piece is treated.

The form, who files it and when

The CRA form for this election 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.

Do not rely on this summary for dates. Read the GST44 filing instructions on canada.ca and confirm your own reporting period with your accountant.

A separate election for estate transfers

A different rule in section 167(2) covers an estate that transfers a deceased person's business property to a beneficiary. No tax is payable if the beneficiary is a registrant, 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.

If you are an executor or beneficiary dealing with a business, this is a different path from a regular sale, and the details are worth confirming with a lawyer or accountant.

What to do next

• Confirm whether the buyer and seller are both GST registrants.
• Check that the buyer is getting all or substantially all of what is needed to run the business.
• List any services, leases, licences or real property in the deal that may stay taxable.
• Put the election in the purchase agreement and agree who prepares Form GST44.
• Read the GST44 filing instructions on canada.ca and diarize the buyer's filing deadline.
• Ask your accountant about your reporting period before closing.

Raise the election early, well before closing. It is easier to build into the agreement than to fix afterwards.

Frequently asked questions