Section 167 Election (HST on a Business Sale)

In an asset sale, each asset is a separate supply for GST/HST purposes. Equipment, inventory, intellectual property and commercial real property are generally taxable, so without relief a registrant seller in Ontario would charge 13% HST on much of the price. A registrant buyer can usually recover that tax as an input tax credit, but only after paying it at closing and claiming it on a later return. Section 167 of the Excise Tax Act removes that cash drag when a business changes hands as a going concern.

The election matters only in an asset deal. A sale of shares is generally not subject to GST/HST, because transferring a financial instrument such as a share is an exempt financial service, so no election is needed. That difference is one of the trade-offs covered in asset purchase vs. share purchase, and Lamba Law's free asset vs. share sale checker flags it for your deal.

The CRA's administrative guidance is GST/HST Memorandum 14-4, Sale of a Business or Part of a Business. It dates from December 2010 and remains the CRA's published position on the election.

Four conditions do most of the work:

1. A business, or part of one, is being sold. The seller must have established, carried on or acquired the business. A sale of one or more individual assets is not a sale of a business. Memorandum 14-4 contrasts a printing division that operates independently of a paper mill, which qualifies, with a single tractor-trailer sold by a trucking company, which does not.
2. The buyer acquires all or substantially all of the necessary property. The buyer must acquire ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary to carry on the business. The CRA generally reads this as 90% or more: property the buyer must obtain elsewhere should generally be no more than 10% of the fair market value of all the necessary property.
3. The buyer can carry on the business. Memorandum 14-4 frames the test as whether the buyer acquires what it needs to be capable of carrying on the same kind of business.
4. The registration rule is met. The election is barred only where the seller is a GST/HST registrant and the buyer is not. Two registrants can elect, and so can a non-registrant seller with either a registrant or a non-registrant buyer.

The registration rule trips up new acquisition companies. A buyer that incorporates a new corporation to buy the business should have it registered for GST/HST before closing; see HST registration in Ontario.

When a valid election is made, no GST/HST is payable on the supplies made under the purchase agreement, with three exceptions set out in subsection 167(1.1):

• Taxable services the seller will render, such as a transition or consulting arrangement supplied by the seller's corporation.
• Property supplied by lease, licence or similar arrangement. If the seller keeps its building and leases it to the buyer, or licenses its trademark instead of selling it, those payments remain taxable.
• A taxable sale of real property to a buyer that is not a registrant. A registrant buyer takes real property under the election with no HST; a non-registrant buyer still pays HST on taxable real property.

Goodwill gets its own rule. Under section 167.1, the part of the price reasonably attributable to goodwill is left out of the tax calculation whenever the buyer acquires all or substantially all of the property needed to carry on the business, even if no election is filed.

The election does not change the rule that each asset is a separate supply with its own share of the price, so the purchase price allocation still matters for the excluded items and for income tax. It also has no effect on Ontario land transfer tax, which is a separate provincial tax on transfers of land.

The seller and buyer jointly complete Form GST44, GST/HST Election Concerning the Acquisition of a Business or Part of a Business. If the buyer is a registrant, it must file the form with the CRA no later than the due date of its GST/HST return for the first reporting period in which tax would otherwise have become payable on the purchase. It can file electronically through the File an election service in My Business Account or Represent a Client.

A missed deadline is not automatically fatal. Subsection 167(1.1) also allows filing on a later day that the Minister determines on the buyer's application. Relief is discretionary, so a buyer who discovers an unfiled election should apply promptly and explain the delay.

An invalid election is a bigger problem. If the conditions were never met, for example because the seller kept the building and key equipment or the buyer was not registered, the election has no effect and HST was payable on the taxable assets. The CRA can assess the seller for the tax it should have collected, with interest and possibly penalties, and the seller will look to the buyer to pay it. A registrant buyer can generally claim an input tax credit once it has paid the tax, so the real cost is often interest, any penalties and disruption.

A well-drafted asset purchase agreement deals with this up front. Both parties represent their registration status, the buyer covenants to file Form GST44 on time, and the buyer agrees to pay any HST later assessed on the sale and to cover penalties and interest caused by its own failure.

Marco Rossi's corporation, Rossi Artisan Bakery Ltd., sells its Mississauga wholesale bakery to a new corporation owned by Ayesha Rahman for $1,450,000: $420,000 for ovens and equipment, $60,000 for two delivery vans, $170,000 for recipes, customer lists and the trade name, and $800,000 for goodwill. Ayesha's corporation takes over the premises lease and everything else needed to run the bakery, well over 90% of the necessary property. It registers for GST/HST two weeks before the August 14, 2026 closing.

Without the election, Marco's corporation would charge 13% HST on the $650,000 of taxable assets other than goodwill, or $84,500. Ayesha's company would have to fund that at closing and wait to recover it as an input tax credit. With the election, no HST is payable on the purchase price. HST still applies to a $24,000, three-month transition services agreement under which Marco's corporation trains her bakers, so her company pays $3,120 of HST on those fees.

Ayesha's corporation files quarterly, and it files Form GST44 online through My Business Account in September, well before October 31, 2026, the due date of the July to September return. The asset purchase agreement makes her company responsible for any HST the CRA later assesses on the sale, which gives Marco the comfort he needs to close without collecting tax.