- Ordinarily, GST/HST applies to most sales of business assets in Ontario, at the harmonized rate (13% as of mid-2026 — verify the current rate before relying on it).
- The central requirement is that the purchaser must acquire ownership, possession, or use of all or substantially all of the property reasonably regarded as necessary to carry on the…
- Beyond the asset threshold, the sale has to be structured as a business transfer — not a sale of assorted assets that happen to belong to a business owner.
If you are structuring an asset sale in Ontario, you have probably heard that a buyer and seller can "elect out" of GST/HST on the deal. That option exists — it lives in section 167 of the Excise Tax Act — but it is not automatic, and not every asset sale qualifies. Get it wrong, and one side can end up owing tax that was never budgeted into the deal.
This article walks through what the section 167 election requires, and what to check before you assume it applies.
What the Section 167 Election Does
Ordinarily, GST/HST applies to most sales of business assets in Ontario, at the harmonized rate (13% as of mid-2026 — verify the current rate before relying on it). On a sale involving equipment, inventory, and goodwill, that can mean significant tax changing hands at closing — even though a registered purchaser will usually recover it later as an input tax credit.
Section 167 lets the vendor and purchaser jointly elect to treat the sale as though no GST/HST applies, provided the sale qualifies as a "supply of a business." Done correctly, it removes cash-flow friction that would otherwise just flow back out as a credit. Claimed where the test isn't actually met, it can leave the vendor on the hook for tax the purchaser never paid.
The Core Test: "All or Substantially All"
The central requirement is that the purchaser must acquire ownership, possession, or use of all or substantially all of the property reasonably regarded as necessary to carry on the business (or part of the business) as a business — not literally every asset the seller owns, but what is needed to actually operate going forward.
There is no fixed statutory percentage that defines "all or substantially all." Courts have accepted figures anywhere from roughly 80% up to 90%-plus, depending on the facts — anyone who tells you a specific bright-line percentage is the legal threshold is overstating what the law says.
Because there is no bright line, whether a deal clears the bar is a judgment call that depends on what assets are excluded, how central they are to running the business, and whether the purchaser can realistically operate as a going concern with what it is acquiring. A buyer who could easily replace an excluded asset (a delivery vehicle, say) is in a different position than one missing something functionally irreplaceable — a key licence, a core piece of equipment, the business's only real property.
What Counts as a "Supply of a Business"
Beyond the asset threshold, the sale has to be structured as a business transfer — not a sale of assorted assets that happen to belong to a business owner. Practical markers that support "supply of a business" treatment:
- [ ] The purchaser is acquiring goodwill, customer relationships, or an ongoing operation — not just hardware
- [ ] The purchaser intends to (and reasonably can) carry on the same or a similar business right after closing
- [ ] Employees, contracts, and location are transferring alongside the physical assets, to the extent the buyer needs them
- [ ] The parties treat the transaction, in substance, as a business transfer rather than a piecemeal liquidation
If a deal looks more like a seller liquidating equipment while winding the business down — rather than a purchaser stepping into an ongoing operation — the election is on much shakier ground.
Common Situations That Complicate Qualification
| Situation | Why it matters for section 167 |
|---|---|
| Seller keeps the real property, leases it back to the purchaser | May still qualify if the leaseback lets the purchaser operate the business — but retention of real property is exactly the kind of exclusion that gets scrutinized |
| Seller retains accounts receivable and cash | Often acceptable, since AR and cash are frequently not "necessary" to carry on the business going forward |
| Purchaser buys only one location out of several | Can qualify as a sale of "part of a business" if that location is itself a functioning, separable business |
| Deal bundles taxable and exempt assets together | Requires care in how the agreement allocates and describes what is being conveyed |
| Purchaser is not registered for GST/HST | The election still turns on the "supply of a business" test — registration status is a separate, related issue for your accountant |
None of these resolve the question on their own — they are exactly the facts a lawyer and accountant need to weigh together before the parties rely on the election.
How the Election Works, and What Happens If It Doesn't Apply
Section 167 requires a joint election — vendor and purchaser must agree and file the appropriate form. It is not the default; without it, GST/HST applies in the ordinary way. Because eligibility is assessed on the facts as they exist at closing, confirm it before the purchase agreement is finalized, so the asset schedule is drafted with the answer already in mind.
If the parties file the election but the deal turns out not to meet the tests, the vendor can remain liable for GST/HST that was never collected from the purchaser — an improperly claimed election does not simply fail to apply quietly. This is why a well-drafted asset purchase agreement addresses the election explicitly, including who bears the cost if the Canada Revenue Agency later disagrees that the test was met.
Frequently asked questions
Does a share sale need the section 167 election?
No. A share sale is generally an exempt supply for GST/HST purposes, so there is no tax on the shares themselves and no need for this election — it applies only to asset sales.
Can we just assume the election applies because it's a "whole business" sale in everyone's mind?
No — informal intent isn't the legal test. What matters is whether the purchaser is actually acquiring all or substantially all of what it needs to carry on the business, based on the specific assets in the agreement.
What if only part of the business is being sold, like one branch location?
The election can still be available for a sale of "part of a business," provided that part is itself capable of being carried on as a business by the purchaser — the same all-or-substantially-all analysis, applied to that branch alone.
Who is responsible if the CRA later says the election didn't apply?
This depends entirely on how the purchase agreement allocates that risk — well-drafted agreements address it directly with representations and indemnities, rather than leaving it to assumption.
Is there a deadline for making the election?
Yes, filing requirements are tied to the transaction. Confirm the current mechanics and timing with your accountant or lawyer as part of closing preparation.
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