Structuring a Going-Concern Sale to Avoid HST on a Bracebridge Deal

The situation

Mai had moved to Canada several years earlier after training and working as a physiotherapist in Argentina, and had spent the years since rebuilding her career here — completing the licensing requirements, working in clinics owned by others, and saving toward the goal of owning a practice outright. When a well-established physiotherapy and rehabilitation clinic in Bracebridge came up for sale, with its longtime owner, Reza, ready to retire after three decades building the practice, Mai saw the opportunity she had been working toward. The clinic came with a loyal patient base, a team of associate therapists, long-term leased premises, and treatment equipment accumulated over decades — altogether valued at roughly $2.8 million, reflecting both the physical assets and the goodwill of an established referral network.

Mai had negotiated the broad terms directly with Reza before either side involved a lawyer — a purchase price, a closing date roughly four months out, and an agreement that Reza would stay on for a short transition period to introduce Mai to referring physicians and long-standing patients. Her husband, Arman, a software developer, had helped her build the spreadsheets she used to satisfy herself the price made sense, though neither of them had worked through what the deal would mean for tax. She came to Treadstone Law to have the purchase agreement drafted and to guide the deal to closing, expecting the legal work to be largely a matter of paperwork around terms both sides had already accepted. The tax structure of the deal, however, had not yet been discussed at all — and it was about to become the single most consequential decision in the transaction.

The tax problem hiding in a routine deal

Most sales of an operating business in Ontario are structured as asset purchases, where the buyer acquires the individual pieces of the business — equipment, leasehold interests, client lists, goodwill — rather than buying shares in the seller's corporation. Under the Excise Tax Act, which governs the harmonized sales tax, a sale of taxable assets like these would ordinarily attract HST, calculated on the value of everything being transferred. On a deal of Mai's size, HST at the applicable rate would have added a very large amount to the price — money Mai would have had to finance or pay up front at closing, even though it would eventually be recoverable.

The Excise Tax Act provides relief from that outcome through what is generally called the going-concern election. Where a business, or substantially all of the assets needed to carry on a business, is sold as a going concern — meaning the buyer acquires enough of the operation to continue running it as the same kind of business — the buyer and seller can jointly elect to treat the sale as though no HST applies to the transfer of those assets. The mechanics require both parties to be registered for HST at the time of closing, to jointly complete and file the prescribed election, and to structure the transaction so that what is being sold genuinely qualifies as a going concern rather than a bare collection of unrelated assets.

The election is not automatic, and it is not something that can be layered onto a deal after the fact if the underlying paperwork was not built to support it. If the purchase agreement does not clearly identify the sale as a transfer of substantially all the assets needed to operate the business, if either party is not properly registered for HST at closing, or if the election is not filed correctly, the CRA can deny the election on audit — years after closing, when neither Mai nor Reza would have the cash on hand they might have set aside at the time. A denied election does not just mean paying the tax; it means Mai, as the party who should have paid HST at closing and did not, could face an assessment for the unremitted tax plus interest, with Reza potentially exposed as well since both parties certify the election is properly made. Treadstone Law's task was to make sure the deal was built to survive that scrutiny from the outset, not adjusted around it later.

What we did

1. Confirmed both parties' HST registration status before drafting began. The going-concern election requires both the buyer and seller to be registered for HST purposes at the time of closing. Reza's corporation was already registered through years of operating the clinic, but Mai had not yet incorporated or registered a business of her own — a routine gap for a first-time buyer, and one that would have made the election unavailable if left unresolved. We advised Mai to incorporate her acquisition company and register it for HST well ahead of closing, giving the registration time to take effect rather than leaving it as a last-minute step.
2. Confirmed the sale qualified as a transfer of a going concern. We reviewed the full list of assets included in the deal — the equipment, the assignment of the clinic's lease, the patient records and referral relationships, and the retention of the associate therapists' service arrangements — against the requirement that the buyer acquire substantially all of what is needed to carry on the same business. Because Mai was taking over the lease, the equipment, the staff, and the ongoing patient relationships rather than cherry-picking select assets, the transaction fit the going-concern description cleanly, and we documented that analysis in our file in case it was ever tested.
3. Built the going-concern structure into the purchase agreement itself, not as an afterthought. We drafted the agreement to state explicitly that the parties intended the sale to constitute a transfer of a going concern for HST purposes, that both parties would be registered by closing, and that both would execute the joint election in the form and within the time required. Making this a contractual obligation, not just a shared assumption, meant Mai had a clear remedy if Reza's side failed to cooperate with the filing.
4. Allocated the purchase price across asset classes. Even with the going-concern election in place, the agreement needed a reasonable allocation of the roughly $2.8 million price across categories — equipment, leasehold improvements, goodwill — since that allocation affects each party's future tax positions under the Income Tax Act, including Mai's ability to claim depreciation on the equipment and improvements going forward. We worked with Mai's accountant to arrive at an allocation both sides could support.
5. Prepared and coordinated the joint election filing at closing. The going-concern election is filed using a form both parties sign, and it needs to be retained and, when required, filed with the CRA rather than simply assumed. We prepared the election alongside the closing documents, had both parties execute it as part of the closing set, and confirmed the filing requirements were met so the election would hold up if either party's HST filings were later reviewed.
6. Advised Mai to keep the underlying records. Because a going-concern election can be reviewed on audit years after the transaction closes, we advised Mai to retain the purchase agreement, the asset list, the election itself, and the analysis supporting why the sale qualified, as part of her permanent corporate records — not just her closing file.

The outcome

The deal closed on schedule, roughly four months after Mai first engaged Treadstone Law, with the going-concern election filed correctly alongside the closing documents. No HST was payable on the transfer, which meant Mai avoided having to finance or find cash for a tax amount that would otherwise have added a very substantial sum to the roughly $2.8 million purchase price — money that instead stayed available for the working capital and equipment upgrades she had planned for her first year running the clinic.

Because the election was built into the transaction from the start rather than assumed at the end, Mai closed with confidence that the structure would hold up if the CRA ever reviewed the sale. Reza's retirement transition proceeded as planned, with a short handover period introducing Mai to the clinic's referring physicians before he stepped back fully. A year on, the clinic was operating under Mai's ownership with its staff, lease, and patient base intact, and no HST issue had arisen — the result of a structure that was correct from the first draft of the agreement rather than repaired under pressure at closing.

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