HST on an Asset Purchase: The Section 167 Election Explained

When you buy the assets of a business, the purchase price can include equipment, inventory, goodwill and more. Without special treatment, GST/HST may apply to many of those items, and that can mean a large amount of tax paid up front.

Section 167 of the Excise Tax Act offers a joint election that can avoid this in the right circumstances. This article explains how it works and who files what. It is general information, and your accountant and lawyer should confirm how it applies to your deal.

Is HST payable on an asset purchase?

Without the election, each property and service sold is still treated as a separate supply, with the price reasonably allocated, and GST/HST generally applies to the taxable items. That allocation rule applies whether or not the election is made.

Goodwill is treated differently. The part of the price reasonably attributed to goodwill is excluded when calculating GST/HST payable, whether or not a section 167 election is made.

So the purchase agreement needs a sensible allocation of the price among the assets, because the allocation drives the tax result.

What the section 167 election does

If a supplier sells a business or part of one, and the buyer acquires all or substantially all of the property needed to carry it on, the parties can jointly elect in the prescribed form. Once the election is made and filed, no GST/HST is payable on the supplies under the agreement.

The election is made jointly on Form GST44, which lets the parties elect not to have GST/HST apply to the sale. It is a tax-timing and cash-flow tool, because it avoids the buyer paying tax and then waiting to recover it.

There are exceptions. Even with the election, tax can still apply to taxable services the seller will render, taxable leases or licences, and taxable sales of real property where the buyer is not a registrant. The election is also not available where the supplier is a registrant and the buyer is not.

Does your purchase qualify?

Two ideas do most of the work: "all or substantially all" and "part of a business".

If you buy only some assets and source the rest elsewhere, you may fall below the threshold. Real property bought separately from the other assets will often fail the test, but this depends on the facts of the deal, so have it reviewed before you assume the election is available.

Who files what, and when

If the buyer is a registrant, the buyer files the election with the CRA by the due date of its GST/HST return for the first reporting period in which tax would otherwise have become payable. The CRA may allow a later date on the buyer's application.

• Both parties: complete and sign Form GST44 jointly.
• Buyer (if a registrant): file the election by the return due date described above.
• Both parties: agree in the purchase agreement that the election will be made, and who is responsible for filing.
• Buyer: be aware that, where the election applies, a registrant buyer is generally deemed to have acquired capital property exclusively for use in commercial activities, and later changes in use can trigger adjustments.

Late-election relief is at the CRA's discretion, so treat the deadline seriously and do not leave the form until after closing is complete.

What to do next

Raise the election early, ideally in the letter of intent, so that the price and the closing statements reflect it. Both sides should confirm their registration status before agreeing on how tax will be handled.

• Confirm that both the buyer and the seller are GST/HST registrants.
• List the assets and estimate whether the buyer is acquiring 90% or more of what is needed to run the business.
• Agree on a price allocation, including the amount attributed to goodwill.
• Include a clause in the purchase agreement committing both parties to sign Form GST44.
• Diarize the filing deadline and who files.
• Ask your accountant about any real property, leases or ongoing services that stay taxable.

Frequently asked questions