- It's worth being precise about the difference between these, because buyers sometimes conflate them: 1.
- Ontario's HST rate is, as of mid-2026, 13% (a 5% federal portion and an 8% provincial portion) — verify the current rate before relying on it, since rates and rules can change.
- Separately from the target's compliance history, consider whether HST applies to the purchase itself.
HST compliance is one of those due diligence items that's easy to overlook because it feels like an accounting detail rather than a legal risk. It shouldn't be overlooked. Whether a target business has properly collected, reported, and remitted HST — and whether the sale itself is structured correctly for HST purposes — can affect both the price you're paying and the exposure you inherit.
This article covers what to check on a target's historical HST compliance, and separately, how HST applies (or doesn't) to the sale transaction itself.
Two Separate HST Questions in Any Deal
It's worth being precise about the difference between these, because buyers sometimes conflate them:
- Has the target business been HST-compliant historically? This is a due diligence question about the target's own tax filing history before you bought it.
- Does HST apply to this sale transaction? This is a question about the purchase itself — whether the deal is structured as a share sale or asset sale, and whether an election is available to eliminate HST on the transaction.
Checking the Target's Historical HST Compliance
Ontario's HST rate is, as of mid-2026, 13% (a 5% federal portion and an 8% provincial portion) — verify the current rate before relying on it, since rates and rules can change. A business that collects HST on its sales is required to remit it; a business that fails to do so can build up arrears, interest, and penalties that attach to the corporation itself.
What to request and review
- HST/GST registration status — confirm the business is registered where required, and has been for the periods you're reviewing.
- Filed returns for a representative historical period, cross-checked against reported revenue in the financial statements.
- Proof of remittance, not just proof of filing — a return can be filed showing an amount owing that was never actually paid.
- Any correspondence with the Canada Revenue Agency regarding audits, reassessments, or payment arrangements.
- Input tax credit claims that look unusually large or inconsistent with the nature of the business, which can be a red flag for an eventual CRA reassessment.
- A tax arrears or clearance search, where available, to confirm no outstanding liabilities are registered against the corporation.
Why this matters more in a share sale
In a share sale, the buyer acquires the corporation itself — including its full tax history and any HST liabilities that haven't yet surfaced, whether or not they were disclosed. In an asset sale, the buyer generally isn't stepping into the seller's corporate tax history in the same way, since it's specific assets changing hands rather than the corporate entity. This is one of many reasons the choice between a share deal and an asset deal matters so much — and why HST due diligence should be scaled to match which structure you're actually doing.
Even in an asset sale, though, undisclosed HST issues at the seller level can matter indirectly — for example, if they affect the seller's ability to close, or if a lien or claim against the seller's assets could complicate the transfer.
HST on the Sale Transaction Itself
Separately from the target's compliance history, consider whether HST applies to the purchase itself.
- Asset sales are generally taxable for HST purposes — HST would normally apply to the sale of most business assets, absent an available election.
- A joint election is available under the Excise Tax Act, allowing the buyer and seller to jointly elect that no HST apply to a qualifying sale of a business (or part of a business), where the purchaser is acquiring all or substantially all of the property necessary to carry on the business. There's no fixed statutory percentage that defines "all or substantially all" — it's assessed on the facts of each transaction, so don't assume you automatically qualify without review.
- Share sales are generally exempt from HST — the sale of shares themselves is not a taxable supply, which is one of several reasons many small Ontario business sales are structured as share deals where the buyer is willing to accept that structure.
Getting the HST treatment of the transaction wrong isn't just a paperwork issue — an incorrectly charged (or uncharged) amount of HST can create real cash flow and compliance problems for both sides after closing.
A Buyer's HST Due Diligence Checklist
- [ ] Confirmed the target's HST/GST registration status and history
- [ ] Reviewed filed returns against reported revenue for consistency
- [ ] Obtained proof of remittance, not just proof of filing
- [ ] Requested any CRA correspondence regarding audits or reassessments
- [ ] Reviewed input tax credit claims for anything unusual
- [ ] Determined whether a section 167 joint election is available and appropriate for this deal
- [ ] Confirmed with an accountant how HST (or its absence) will be handled on the closing statement of adjustments
Frequently asked questions
Does the section 167 election apply automatically to every asset sale?
No — it requires the parties to jointly elect, and it only applies where the purchaser is acquiring all or substantially all of the property necessary to carry on the business (or a part of it) as a business. Whether a particular deal qualifies is fact-specific and should be confirmed with an accountant or tax lawyer before you rely on it.
If the seller owes back HST, does that automatically become my problem?
It depends on the deal structure. In a share sale, you're acquiring the corporation and its liabilities generally come with it unless the purchase agreement's representations, warranties, and indemnities address the risk. In an asset sale, seller-level tax debts generally stay with the seller, though the specifics of what liabilities you're assuming should always be spelled out explicitly in the agreement.
Can I get a clearance certificate confirming no outstanding HST is owed?
Tax clearance mechanisms exist federally for certain purposes, but the availability, process, and scope depend on the specific circumstances and should be discussed with your accountant or tax advisor — this is not something to assume works the same way in every deal.
What if the seller's HST filings don't match their reported revenue?
This is a significant red flag that warrants further investigation before you proceed, since it could indicate underreported income, compliance problems, or simply inconsistent bookkeeping — any of which affects how much you can trust the rest of the financial picture.
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