- The section 167(1) election can remove GST/HST on the sale, but only if the buyer acquires all or substantially all of the property needed to run the business or part of it.
- If the seller is a GST/HST registrant, the buyer must be one too, and both sign Form GST44.
- Some items stay taxable even with a valid election, so the sale agreement should be reviewed item by item.
Selling a business usually means selling many things at once: equipment, inventory, customer lists, a lease and goodwill. If you are the seller, you may wonder whether you must collect HST on the whole price. If you are the buyer, you may wonder whether you must pay it on top of the price at closing.
Federal tax rules include a special election for business sales that can change the answer. This article explains in plain words how the election works, who can use it, and where tax can still apply. Your facts matter, so confirm the details with a lawyer or accountant before you sign.
What happens if there is no election
Without an election, or where less than substantially all of the property is sold, the sale is treated as separate supplies of each property and service, so GST/HST may apply to the taxable items. That means each asset in your deal may need to be looked at on its own.
Selling individual assets alone does not qualify for the election. A buyer who only wants a truck and some inventory, for example, would not meet the test.
The section 167(1) election
The election is available only if the buyer acquires all or substantially all (generally 90% or more) of the property reasonably necessary to carry on the business or part of it. The sale of part of a business can qualify, as long as the buyer takes what is needed to run that part.
If the seller is a GST/HST registrant, the buyer must also be a registrant for the election to be made. With a valid election, no GST/HST is payable on the property and services supplied under the sale agreement, so none is collected at closing.
- The buyer takes all or substantially all of the property needed to carry on the business or part of it.
- The buyer is a registrant where the seller is one.
- Both sides make the election jointly on Form GST44.
Filing the election
The registrant buyer must file Form GST44 with the CRA by the date its GST/HST return is due for the first reporting period in which tax would otherwise have been payable. The CRA may set a later day if the buyer applies.
Because the buyer files, sellers often ask for a signed copy or confirmation in the sale agreement. Missing the filing date can cause real problems, so put the deadline in your closing checklist.
Where tax can still apply
A valid election does not remove every charge. Tax still applies to taxable services the seller provides to the buyer, taxable leases and licences, and taxable sales of real property where the buyer is not a registrant.
Goodwill is handled separately. Goodwill remains excluded from GST/HST under s. 167.1 if the s. 167(1) conditions are met, even without an election. A different election under s. 167(2) covers business property of a deceased individual and is made jointly by the estate and the beneficiary; it is not the ordinary sale election.
| Situation | GST/HST at closing |
|---|---|
| Valid s. 167(1) election made | None on the property and services supplied under the sale agreement, except taxable services the seller provides to the buyer, taxable leases and licences, and taxable sales of real property to a non-registrant buyer |
| No election, or less than substantially all property sold | May apply to each taxable item |
| Taxable services from seller to buyer | Still taxable |
| Real property sold to a non-registrant buyer | Still taxable where the sale is taxable |
What to do next
Before you sign, check how the deal is structured and what the buyer is actually acquiring. A lawyer or accountant can confirm whether the election fits and how it affects real property.
- List every asset, service and lease in the deal.
- Confirm whether both seller and buyer are GST/HST registrants.
- Decide who will complete and file Form GST44, and by when.
- Add election wording to the sale agreement.
- Ask about any real property or services that may still be taxable.
Frequently asked questions
Does HST apply when I sell only some equipment?
Selling individual assets alone does not qualify for the section 167(1) election. Without an election, each item is treated as a separate supply, so tax may apply to taxable items.
Who files Form GST44?
The parties make the election jointly on Form GST44. The registrant buyer must file it with the CRA by the due date of its GST/HST return for the first reporting period in which tax would otherwise have been payable.
Can the buyer use the election if it is not registered?
If the seller is a GST/HST registrant, the buyer must also be a registrant for the election. A non-registrant buyer still faces tax on taxable sales of real property.
Is goodwill taxed in a business sale?
Goodwill remains excluded from GST/HST under s. 167.1 if the s. 167(1) conditions are met, even without an election. Whether your deal meets those conditions is worth confirming.
Sources
- CRA GST/HST Memorandum 14-4, Sale of a Business or Part of a Business — canada.ca
- Excise Tax Act, s. 167 (Justice Laws) — 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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