Section 167 Election: How to Avoid GST/HST When Selling a Business in Canada
When a business changes hands in Canada, GST/HST can add 5% to 15% to the purchase price on top of everything else the buyer is paying. For an asset sale of a $3 million business, that could mean $390,000 in HST the buyer must fund at closing even knowing they’ll eventually claim it back as an input tax credit. Section 167 of the Excise Tax Act (ETA) exists precisely to eliminate that cash flow burden and the administrative exercise that comes with it.
The election is available when the deal is genuinely the sale of a going concern, not just the sale of a piece of equipment or a list of assets. When it applies, no GST/HST is charged at all on the business assets transferred. The vendor doesn’t collect it, the purchaser doesn’t pay it, and neither party needs to file input tax credits afterward. The CRA gets the same revenue either way; the election just removes an unnecessary step.
If you are buying or selling a business by way of an asset purchase, the Section 167 election should be one of the first conversations you have with your lawyer and accountant before closing. At Kalfa Law we advise on Section 167 elections as part of our broader asset purchase and sale practice.
What Section 167 of the Excise Tax Act Does
Section 167 creates two distinct elections. Subsection 167(1) applies to the sale of an operating business or a part of a business. Subsection 167(2) applies to the sale of business assets belonging to a deceased individual. Most commercial transactions use 167(1), and that is the focus of this article.
The election is filed jointly by the vendor and purchaser using CRA Form GST44 Election Concerning the Acquisition of a Business. When properly filed, it eliminates GST/HST on the taxable supplies transferred as part of the business. The purchaser doesn’t pay it, the vendor doesn’t remit it, and no input tax credit claims are needed.
Three Conditions That Must All Be Met
The election is not available in every asset sale. Three conditions must all be satisfied.
First, the subject of the sale must be a business or a part of a business. It must be something the vendor operated or acquired as a going concern not just an assortment of assets. The CRA looks at whether the transferred assets constitute a functioning business that can be operated after closing.
Second, the purchaser must be acquiring all or substantially all of the property necessary to carry on the business. The CRA interprets “all or substantially all” as 90% or more of the operating assets. This threshold includes tangible assets such as equipment, vehicles, and furniture; intangible assets such as goodwill, trademarks, and customer lists; and capital real property such as land and buildings where the vendor owns rather than leases them. The 90% threshold does not require the buyer to acquire every last chair minor items left behind or purchased new after closing won’t disqualify the election if the business can operate immediately.
Third, the purchaser must be registered for GST/HST purposes. The vendor does not need to be registered, though in practice most operating businesses with revenues above the $30,000 small supplier threshold will be.
What the Election Does Not Cover
Even where these conditions are satisfied, certain assets and arrangements fall outside the election.
Property that is leased or licensed rather than sold continues to carry GST/HST in the ordinary way. If the vendor is retaining ownership of the building and the purchaser takes it over on a lease, HST applies to those lease payments. This is one reason the structure of a deal matters: a vendor who sells the real estate as part of the asset sale may be in a better position for the election than one who retains it and leases it back.
Services that the vendor continues to provide after closing a consulting or transition services agreement, for example, are taxable supplies and are not covered by the election. The election covers the sale of property, not the ongoing provision of services.
Businesses that primarily supply exempt supplies under Schedule V of the ETA, such as certain financial services, cannot use the election. The election is designed for businesses that would otherwise generate taxable supplies in the purchaser’s hands; where the business is itself largely exempt, the rationale disappears.
Zero-rated supplies (taxed at 0% under Schedule VI) are different from exempt supplies and do not prevent the election from applying.
When Real Property Is Part of the Deal
An asset sale that includes commercial real estate owned by the vendor raises additional considerations under the ETA. Section 167 can cover the sale of commercial real property as part of a going-concern transfer, but only where the purchaser is a GST/HST registrant who will use the property in commercial activities. Where the real property portion of the deal is substantial, or where mixed uses are involved, the interaction between Section 167 and the general real property rules under Section 221(2) of the ETA, which can require the purchaser to self-assess the HST, should be reviewed carefully with your tax advisor before closing. Getting this wrong can result in penalties even when the rest of the election is properly filed.
Section 167 in the Context of Asset Sale Elections
Buyers and sellers in asset sales often encounter three federal elections at once, and understanding how they interact is important. Section 167 of the ETA handles GST/HST on the business assets. Section 22 of the Income Tax Act handles the tax treatment of accounts receivable allowing the vendor to deduct bad debt reserves and converting the receivables sale from capital treatment to income treatment for both parties. Section 68 of the ITA governs how the purchase price is allocated across asset classes, which affects the vendor’s income and capital gains characterization and the purchaser’s depreciation base. These elections are typically negotiated, agreed upon, and documented in the asset purchase agreement. Leaving any of them to the last minute creates risk on all sides.
The Section 167 election is the most time-sensitive of the three because it must be filed before the purchaser’s reporting period ends, and for a monthly GST/HST filer, that can be as soon as 30 days after closing.
Deadline and How to File
The purchaser is responsible for filing the GST44 with the CRA, but both parties must sign it. The deadline is on or before the day the purchaser would otherwise have been required to file their GST/HST return for the reporting period in which tax would have been payable. For monthly filers, that can come quickly after a deal closes. Quarterly and annual filers have more time, but confirming the exact deadline with your accountant before closing — not after — is strongly recommended.
The purchaser files the completed GST44 either electronically through their tax preparer or by submitting it to their local CRA tax center, together with the GST/HST return for the period in which the acquisition occurred.
What Happens if the Election Is Not Filed or Filed Late
If the election is not filed at all, GST/HST becomes payable on the transaction. The vendor is generally responsible for collecting and remitting it to the CRA, even if neither party added it to the purchase price at closing, leaving the vendor potentially on the hook for tax they never received. Depending on deal documentation, the vendor may have a contractual claim against the purchaser, but that is a dispute neither party wants.
Late-filed GST44 elections are not automatically accepted. While the CRA has some discretionary authority to accept late elections in appropriate circumstances, there is no guaranteed relief. The safest position is to file on time. Both parties benefit from confirming the filing deadline as a condition of closing, and the purchaser’s obligation to file the GST44 promptly should be documented in the asset purchase agreement.
Mixed Transactions: When Only Part of the Sale Qualifies
Not every asset sale is a clean business transfer. Sometimes a deal includes property that qualifies under Section 167 alongside property that does not for example, where some assets are being sold and others are being leased, or where the sale includes both the operating business and an unrelated asset. In these situations, the election generally applies only to the qualifying portion of the transaction, and the parties need to allocate the purchase price between qualifying and non-qualifying components in the agreement. Failing to do so creates ambiguity about where HST applies and can complicate both the election filing and any subsequent CRA review.
Section 167 vs. Share Sale: An Important Distinction
The Section 167 election only exists in the context of an asset sale. If the purchaser is buying the shares of the corporation that operates the business rather than the underlying business assets, there is no GST/HST on the share purchase in the first place, because shares are financial instruments and their sale is an exempt supply. The GST/HST question, and therefore the Section 167 election, simply doesn’t arise in a share deal. For a comparison of how asset and share deals differ across tax, liability, and deal structure, see our article on share purchases vs. asset purchases.
Work with a Business Law Firm That Understands Asset Sales
Kalfa Law Firm advises buyers and sellers in private business transactions, including asset purchase and sale agreements, GST/HST elections, income tax elections, and purchase price allocation. We handle the full legal side of selling your business and purchasing a business in Ontario.
Related Reading
Share Purchase vs. Asset Purchase · Section 22 Tax Election on the Sale of Receivables · GST/HST on Sales Across Canada · Sale of Your Business · Purchase of a Business · FAQs: Buying and Selling a Business in Ontario
FAQs:
-Shira Kalfa, BA, JD, Partner and Founder
Shira Kalfa is the founding partner of Kalfa Law Firm. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax Foundation, Women’s Law Association of Ontario, and the Toronto Jewish Law Society.
© Kalfa Law Firm 2025. Updated September 7, 2026
