The Section 167 Election Explained: Selling a Business Without Charging HST in Ontario

Most sales of business assets in Ontario are, by default, taxable supplies — meaning the seller has to collect HST and the buyer has to pay it at closing. For many qualifying business sales, though, there's a well-established alternative: a joint election under section 167 of the federal Excise Tax Act that lets the sale proceed without HST changing hands at all.

This election is genuinely useful — it avoids the buyer having to come up with a large amount of HST cash at closing that it might only recover later — but it isn't automatic, and it isn't available to every deal. Here's what it actually does, and where sellers and buyers tend to trip over it.

What the Section 167 Election Does

Section 167 of the Excise Tax Act permits the vendor and purchaser to jointly elect that GST/HST does not apply to a qualifying sale of a business, or part of a business. Where the conditions are met and the election is properly made, the parties simply do not charge or collect HST on the sale — instead of the seller collecting HST and the buyer later recovering it (if eligible) as an input tax credit, no HST changes hands in the first place.

This matters most where the buyer would otherwise have had to fund a large HST payment at closing purely to recover it later, tying up cash unnecessarily even though the net result, once the buyer's input tax credit is factored in, might be the same either way.

The Core Requirement: "All or Substantially All" of the Business

The election is only available where the purchaser is acquiring ownership, possession, or use of all or substantially all of the property necessary for the purchaser to carry on the business (or part of the business) as a business. This is not a fixed percentage set out anywhere in the legislation. It is a qualitative test that looks at whether what's actually being transferred is genuinely enough for the buyer to operate the business going forward — not a specific number you can simply calculate and compare against a bright line.

Because there's no fixed statutory threshold, whether a given deal clears this bar depends on exactly what's included and excluded from the sale. A sale that leaves out something genuinely important to running the business — a key piece of equipment, a critical contract, a necessary licence — can put the availability of the election in doubt, even if most of the business's assets by value are included. This is a question to work through carefully with your accountant or tax lawyer on the actual facts of your deal, not to assume either way.

How the Election Generally Fits Into a Deal

1. Confirm early that the transaction is a genuine asset sale of a business (or part of a business), not just a sale of isolated assets. The election is aimed at sales of an operating business, not a one-off equipment sale.
2. Assess, with professional advice, whether what's being transferred meets the "all or substantially all" standard. This should happen during deal planning, not after the purchase agreement is signed.
3. Both the seller and the buyer must jointly make the election. It isn't something one side can elect unilaterally — it requires both parties' agreement and participation.
4. Document the election properly and file it correctly and on time. A late or incorrectly completed election can fail to achieve its purpose, leaving the parties back at the default taxable-supply outcome.
5. Reflect the election in the purchase agreement itself. The agreement should be explicit about whether HST applies, and set out each party's obligations regarding the election.

What the Election Does Not Cover

• It does not eliminate other taxes that may apply to the transaction — Ontario land transfer tax, for example, still applies separately to any real property included in an asset sale, regardless of whether the section 167 election is used.
• It does not apply automatically just because a business is being sold — the "all or substantially all" test has to actually be met on the facts.
• It does not remove the need to properly document and file the election — a verbal understanding between the parties is not enough.
• It does not apply to a share sale, which is generally treated as an exempt supply for HST purposes on its own separate basis, without needing this election at all.

Common Pitfalls

• Assuming the election applies without confirming that the "all or substantially all" standard is actually met on the specific assets included in the deal.
• Leaving the election as an afterthought, discovered only when the closing statement of adjustments is being prepared.
• Failing to file the election correctly or on time, which can undo the intended benefit entirely.
• Confusing this election with the general HST-exempt treatment of share sales — they are different rules serving different kinds of transactions.

Frequently asked questions