The Section 167 Election: How HST Is Avoided on a Business Sale in Ontario

Selling a business as an asset sale, rather than a share sale, normally means HST applies to the sale of the underlying assets — inventory, equipment, and in some structures, real property — the same as it would on any other commercial transaction. That can mean a genuinely large amount of tax changing hands between buyer and seller purely as a cash-flow matter, even where the buyer will eventually recover it through input tax credits. The section 167 election is the mechanism that, in the right circumstances, lets a buyer and seller of an ongoing business skip charging that tax on the sale entirely.

This is one of the more consequential elections in a business sale, and it's also one that's easy to get wrong if the transaction isn't structured with it in mind from the start. This article explains what it does and what it requires — not as a substitute for having your purchase and sale agreement drafted with the election properly built in.

What the Section 167 Election Does

Where the conditions are met, the election allows the sale of a business (or part of a business) to proceed without HST being charged on the transaction at all, rather than having HST charged and then recovered later through input tax credits. This avoids the buyer having to finance a large tax payment at closing, and avoids the seller having to collect and remit tax on assets it's disposing of as part of winding down or exiting the business.

Importantly, this isn't a general exemption for selling business assets — it's a specific joint election that both parties must actively make, and it only applies where the underlying conditions for a qualifying business sale are satisfied.

Who Can Use It

The election is available to a buyer and seller who are both parties to the sale of a business, where the buyer is acquiring the business (or an established part of it) as a going concern rather than simply buying a collection of unrelated assets. In general terms, the recipient needs to be acquiring ownership, possession, or use of all or substantially all of the property necessary for the recipient to be capable of carrying on the business. The recipient generally also needs to be a GST/HST registrant at the time of the sale.

This is a fact-specific test applied to the actual structure of the deal — what's included in the purchase, what's carved out, and whether what remains still functions as "the business" in the buyer's hands.

What Counts as "All or Substantially All" of a Business

This is the part of the analysis that causes the most disputes. A sale that includes the equipment and client list but excludes the lease, or that carves out a key piece of intellectual property the business depends on, may not meet the threshold — even if it looks, informally, like "the business changed hands." There's no simple checklist that guarantees a qualifying sale; it depends on what's actually necessary for the buyer to operate the business going forward, assessed on the specific facts of that business. This is exactly the kind of judgment call that should be worked through with a tax professional and reflected explicitly in the purchase and sale agreement — not assumed after the fact.

How the Election Is Made

The election is a joint one — both the buyer and the seller must agree to make it and complete the prescribed form together. It is generally filed by the party required to report it on their GST/HST return, with both parties keeping a copy on file. Because it depends on facts specific to the transaction, it's typically negotiated and documented as part of the purchase and sale agreement itself, with representations from both sides about the state of the business being sold — not treated as a check-the-box formality added at the last minute before closing.

What Happens if the Election Is Invalid

If the election is made but the underlying conditions weren't actually satisfied — for example, because the sale didn't really transfer "all or substantially all" of what's needed to carry on the business — the CRA can treat the sale as taxable after the fact. That exposes the seller to an assessment for the HST that should have been charged and remitted, generally with penalties and interest layered on top, often well after the sale proceeds have already been distributed and spent. This is exactly why the eligibility analysis should happen before closing, not be assumed based on how the deal was described informally between the parties.

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