Do You Pay HST When Buying a Business in Nova Scotia?

Buying a business in Nova Scotia often involves a large price, and many buyers and sellers worry that HST will be added on top. Whether it is depends heavily on how the deal is structured: are you buying the shares of a corporation, or the assets of the business?

This article explains the general GST/HST picture for both structures, how the section 167 election on Form GST44 works, what it cannot do, and a warning for deals between related people. Every deal has its own facts, so treat this as a map, not a substitute for advice from a lawyer or accountant.

This article covers the law of Nova Scotia.

Share purchase or asset purchase: the starting point

In general, buying shares of a corporation is not subject to GST/HST, while buying assets can be, unless an exemption or election applies. That difference is one reason the structure of a deal matters.

In a share purchase, the corporation's own assets keep the same cost base, and your cost relates to the shares only. In an asset purchase, you allocate the purchase price among the assets you acquire, generally at fair market value, with goodwill getting the leftover balance, and that allocation sets your cost base for each asset.

The section 167 election on Form GST44

For asset purchases, the buyer and seller may jointly elect under Excise Tax Act s. 167(1), using Form GST44, so that no GST/HST is payable on the sale of a business or part of a business. This applies where the buyer acquires all or substantially all of the property needed to carry on the business.

CRA generally treats "all or substantially all" as 90% or more of the property needed to carry on the business. Put another way, property the buyer must obtain elsewhere should generally be no more than 10% of the fair market value of all the necessary property.

Deadline for filing the election

If the buyer is a GST/HST registrant, it must file Form GST44 with CRA on or before the due date of its GST/HST return for the first reporting period in which tax would otherwise have become payable. CRA may allow a later date if the buyer applies.

Because the deadline is tied to the buyer's own return, it is worth raising the election early in negotiations and building it into the purchase agreement, rather than leaving it until after closing.

When the election cannot be used, and what stays taxable

There are two main situations where the election is not available:

• The seller is a GST/HST registrant and the buyer is not a registrant.
• The buyer is buying only one or more individual assets rather than enough of the business's property. That is generally not a sale of a business, and CRA says the election cannot be made if you sell only one or more assets of your business.

Even with a valid election, GST/HST still applies to a taxable service the seller will provide, to taxable property supplied under a lease or licence, and, where the buyer is not a registrant, to a taxable sale of real property.

Goodwill is treated differently. CRA says consideration attributed to goodwill is not included in GST/HST calculations, even if no section 167 election is made.

Buying from a relative or other non-arm's-length seller

If you buy from someone you do not deal with at arm's length, there is an added risk. Under Excise Tax Act s. 325(1), a non-arm's-length transferee, including a current or former spouse or common-law partner or a person under 18, can become jointly and severally liable for the transferor's GST/HST debts.

That liability is capped at the lesser of the excess of the property's value over what was paid and the transferor's outstanding amounts, and the Minister may assess the transferee at any time. If you are buying from family, ask a lawyer or accountant to check the seller's GST/HST position before you close.

What to do next

• Confirm whether the deal is a share purchase or an asset purchase.
• Find out whether the buyer and the seller are GST/HST registrants.
• Estimate whether the buyer is getting 90% or more of the property needed to carry on the business.
• If you plan to elect, agree to it in writing and note the Form GST44 filing deadline.
• Identify any services, leases, licences or real property that may remain taxable.
• If the seller is a relative, ask about the seller's outstanding GST/HST amounts.

A lawyer and accountant can confirm how these rules fit your deal, including the current HST rate and any other taxes that may apply.

Frequently asked questions