- A share purchase is generally not subject to GST/HST, while an asset purchase can be, unless the parties elect.
- Seller and buyer can jointly elect that no GST/HST is payable on an asset sale if the buyer takes all or substantially all of the property needed to carry on the business.
- The election cannot be used if the seller is a GST/HST registrant and the buyer is not.
If you are buying or selling the assets of a business in Ontario, sales tax is one of the first costs to come up. The seller worries about collecting and remitting it. The buyer worries about paying a large extra amount on closing.
This article explains in plain words how GST/HST usually treats a business sale, how the joint election on Form GST44 can remove the tax from an asset sale, and where it does not work. Your own deal may have details that change the answer, so treat this as a starting point for a conversation with your lawyer or accountant.
Share sale or asset sale: the starting point
In a share purchase, the buyer buys the corporation itself. In an asset purchase, the buyer buys the business's property, item by item. That difference drives the sales tax result.
A share purchase is generally not subject to GST/HST. An asset purchase can be, unless the parties make an election. Buyers often prefer assets, partly because they record each asset at its allocated cost.
Retail sales tax is a separate question. How it may apply to particular items in an Ontario business sale depends on the facts, so ask your lawyer or accountant to confirm it before you sign.
The joint GST/HST election on Form GST44
Seller and buyer can jointly elect that no GST/HST is payable on an asset sale. This works if the buyer acquires all or substantially all (at least 90%) of the property needed to carry on the business and can continue operating it.
The election is made on Form GST44. It must be filed by the due date of the buyer's GST/HST return for the first reporting period in which tax would otherwise have been payable. Missing that date can leave tax payable, so put it on the closing timeline.
Even with the election, GST/HST still applies to taxable services supplied by the seller and to taxable leases or licences of property.
When the election is not available
The election cannot be used if the seller is a GST/HST registrant and the buyer is not. A buyer who is not yet registered should raise this early with their advisers, because it may change how the deal is priced and structured.
If the buyer is not buying all or substantially all of the property needed to run the business, for example only a few pieces of equipment, the election test is not met.
Why the price allocation still matters
Where an amount can reasonably be regarded as partly paid for property, services or a restrictive covenant, each part is treated separately. The part attributable to a property is that property's proceeds for the seller and its cost for the buyer.
If the agreement sets reasonable prices for individual assets, the CRA uses them. If not, the price is allocated to each asset at fair market value, then to inventory, and the remaining balance to goodwill. The buyer's allocation should match what the seller reported.
| Deal type | GST/HST position |
|---|---|
| Share purchase | Generally not subject to GST/HST |
| Asset purchase, no election | GST/HST can apply |
| Asset purchase with Form GST44 election | No GST/HST on the assets, but taxable services and taxable leases or licences are still taxed |
What to do next
- Confirm whether the deal is a share purchase or an asset purchase.
- Check whether each side is a GST/HST registrant.
- Decide early whether the election will be made, and who will file Form GST44 and by when.
- Write a reasonable price for each major asset into the agreement.
- Ask your lawyer or accountant about retail sales tax on any tangible items in the sale.
Frequently asked questions
Is HST payable when I buy shares of a company?
A share purchase is generally not subject to GST/HST. Other taxes and risks still come with a share deal, so your lawyer should review the whole structure.
What is the election that avoids HST on an asset sale?
It is a joint election made by the seller and buyer on Form GST44. It is available if the buyer acquires all or substantially all (at least 90%) of the property needed to carry on the business and can continue operating it.
When is the election due?
The form must be filed by the due date of the buyer's GST/HST return for the first reporting period in which tax would otherwise have been payable.
Can I use the election if I am not registered for GST/HST?
Not if the seller is a registrant and the buyer is not. Other situations depend on the facts, so confirm with your accountant before closing.
Sources
- CRA – Buying a business — canada.ca
- Income Tax Act, s. 68 — Justice Laws (federal)
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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