Section 167 Excise Tax Act: GST/HST Election on Business Sales

Section 167 of the Excise Tax Act lets the seller and buyer of a business jointly elect to transfer the operation without charging GST/HST on the sale. The election is filed on Form GST44, and when it applies, no federal sales tax is payable on the property or services supplied under the purchase agreement, with a few specific exceptions. The buyer would normally recover that tax through input tax credits, so the Canada Revenue Agency treats the election as a way to skip the collect-and-refund cycle on a going-concern sale.

The election is not automatic and it is not forgiving. Four eligibility conditions must all be satisfied, and a filing deadline tied to the buyer’s own GST/HST return governs when the paperwork is due. Miss a condition or the deadline and the full purchase price can become taxable retroactively, with interest and penalties.

When the Election Is Available

Four conditions have to line up. If any one fails, the entire purchase price becomes subject to GST/HST at the applicable rate, which ranges from 5% in GST-only provinces to as high as 15% in the highest-rate HST provinces.¹

The 90% Asset Test

Under the agreement, the buyer must acquire ownership, possession, or use of all or substantially all of the property reasonably necessary to carry on the business.² The CRA reads “substantially all” as 90% or more.³ If the seller keeps back equipment, inventory, or other assets whose fair market value exceeds 10% of what is needed to run the operation, the election fails.

This is where most disputed assessments start. The test isn’t just a count or a dollar percentage. The CRA looks at whether what changed hands is actually enough to carry on the business. A restaurant buyer who receives the kitchen equipment but not the lease for the premises may not meet the threshold even if the equipment represents most of the asset value. Detailed schedules listing what was included and what was excluded are the strongest defence if the CRA questions the election later.

Registration Status of Both Parties

When the seller is a GST/HST registrant, the buyer must also be a registrant at the time of the transfer.³ If the seller is not a registrant, this restriction does not apply, which is how certain sales involving non-resident sellers can still qualify.²

Each party’s GST/HST program account number follows the standard CRA format: a nine-digit business number, the two-letter RT identifier for GST/HST, and a four-digit reference number, for 15 characters total.⁴ Both numbers need to be active on the date of sale. A lapsed registration can sink the election on its own, so confirm status before closing.

What Qualifies as a Business or Part of a Business

The Act defines a business broadly to cover any profession, trade, calling, or manufacturing activity.³ The election is also available on part of a business, provided that part can function independently from what the seller keeps. A company that runs both a bakery and a catering division can sell only the catering arm under Section 167, as long as catering has its own identifiable assets and revenue stream.

Joint Agreement to Elect

Both parties must agree to file the election jointly. It cannot be imposed by one side on the other, and both signatures are required on Form GST44.

What the Election Covers and What Stays Taxable

When Section 167 applies, no GST/HST is payable on property or services supplied under the sale agreement, with three statutory exceptions.²

Covered assets include tangible property (equipment, furniture, vehicles, inventory for resale) and intangible property (goodwill, trademarks, patents, customer lists). Goodwill often represents a large share of the price, so keeping it out of a 13% or 15% HST charge is where much of the practical benefit sits. Assumed leases for equipment or premises generally fall inside the election as well, since the buyer needs them to keep operating.

Three categories stay taxable even when the election is filed:

Services the seller provides after closing, such as post-sale consulting, training, or transition support, are taxed at the applicable GST/HST rate regardless of the election.
Ongoing leases or licences from the seller to the buyer under the same agreement remain taxable supplies.
Real property sold to a buyer who is not a GST/HST registrant is taxable.

The cost of any taxable services or continuing leases has to be separated from the asset purchase price in the agreement. Bundling everything together invites reassessment of the whole transaction.³

Real property inside a business transfer needs particular attention. Even where both parties are registrants, the real estate has to sit inside the 90% package of assets necessary to carry on the business. If the building is bought under a separate agreement, the election may not reach it. Standard practice is to address land and buildings as a distinct component with their own tax analysis.

Input Tax Credits After a Section 167 Sale

Because no GST/HST is paid, the buyer cannot claim input tax credits on the acquired assets. For capital property, though, the Act applies a deemed-use rule: where capital property is transferred under a valid election and the buyer intends to use it in commercial activities, the buyer is deemed to have acquired it exclusively for commercial use.³

That deemed status matters if the buyer later shifts the property to non-commercial use, at which point the change-in-use rules can trigger GST/HST as though the buyer had just acquired the property personally. In the other direction, capital property initially deemed acquired for non-commercial use can generate an ITC later if commercial use begins. Financial institutions have their own set of rules under subsection 205(5) that produce different outcomes. Any mixed-use scenario deserves a walk-through of the ITC consequences before closing.

Filing Form GST44

The joint election is made on Form GST44, “Election Concerning the Acquisition of a Business or Part of a Business.”⁵ Use the current version from the CRA website; older versions can be missing required fields.

The form calls for each party’s full legal name exactly as it appears on the tax registration certificate, the 15-character GST/HST program account numbers, a description of the business or business segment being transferred, and the exact date ownership changes hands. That date drives the filing deadline. Both parties sign. Where a corporation is a party, an officer with authority to bind the company signs on its behalf.

Who Files and When

The buyer is responsible for filing the completed form. It can go in electronically through the CRA’s My Business Account or Represent a Client, or by mail to the buyer’s designated tax centre.⁵

The deadline is the day the buyer’s GST/HST return is due for the first reporting period in which tax would have been payable on the transaction if not for the election.² A monthly filer has a much shorter window than an annual filer, so know your reporting period before closing. The CRA has discretion to accept a late filing on application, but relying on that discretion is risky.

Recordkeeping

The CRA does not send a confirmation when the election is accepted. It is processed silently, and the agency reaches out only if something is wrong. Keep a signed copy of the form, proof of submission, and the underlying purchase agreement for at least six years from the end of the tax year the transfer relates to.⁶ If an audit lands years later, the buyer needs the original documentation on hand to justify why no tax was collected.

What Happens When the Election Fails

If the CRA concludes the election was invalid, the full GST/HST becomes owing retroactively from the date it would have originally been due.

Interest on overdue GST/HST is charged at the prescribed rate, set quarterly by the CRA. For the first two quarters of 2026, that rate is 7% annually.⁷ Interest runs from the date the tax should have been remitted until it is actually paid.⁸ On a large acquisition, several years of compounding produces a serious number.

A late-filing penalty sits on top of the interest. The base penalty is 1% of the unpaid amount, plus 0.25% for each complete month the return remains outstanding, capped at 12 months.⁹ The penalty maxes at 4% of the unpaid tax. Combined with interest, a failed election on a $2 million purchase in a 13% HST province can produce a six-figure liability without much effort.

Objecting to a Denial

When the CRA issues a notice of assessment denying the election, the buyer has 90 days from the date on the notice to file a formal notice of objection.¹⁰ The objection sends the file to the CRA’s Appeals Division for independent review. Filing an objection does not automatically pause the obligation to pay, so the assessed amount may still have to be remitted while the dispute is pending. If Appeals upholds the assessment, the next step is the Tax Court of Canada. Most Section 167 disputes turn on factual questions about the 90% test or the registration status of the parties, so contemporaneous asset schedules, appraisals, and correspondence between buyer and seller are the evidence that carries the case.

Voluntary Disclosure After the Fact

If it turns out after closing that the election was filed incorrectly or missed entirely, the CRA’s Voluntary Disclosures Program may offer partial relief from penalties and interest. Relief is granted case by case for taxpayers who come forward to correct filing errors.¹¹ The program changed effective October 1, 2025, so applications made in 2026 follow the updated rules. Voluntary disclosure is not available once the CRA has already begun an audit or enforcement action on the same issue, which makes timing the difference between relief and full exposure.

Provincial Sales Tax Is Not Covered

Section 167 reaches only GST and HST. In British Columbia, Saskatchewan, and Manitoba, provincial sales tax may still be payable on business assets transferred in the same deal, even though the federal tax is exempt. Each of those provinces has its own rules about whether business asset transfers qualify for PST relief. Quebec applies its own parallel system under the Quebec Sales Tax. A valid Section 167 election does not shield a transaction from provincial tax, and the provincial treatment has to be verified separately.

1
Canada Revenue Agency. Charge and Collect the GST/HST
2
Department of Justice Canada. Excise Tax Act – Section 167
3
Canada Revenue Agency. Sale of a Business or Part of a Business
4
Canada Revenue Agency. Program Accounts You May Need
5
Canada Revenue Agency. GST44 GST/HST Election Concerning the Acquisition of a Business or Part of a Business
6
Canada Revenue Agency. Where to Keep Your Records, for How Long and How to Request the Permission to Destroy Them Early
7
Canada Revenue Agency. Interest Rates for the First Calendar Quarter
8
Department of Justice Canada. Excise Tax Act – Section 280
9
Department of Justice Canada. Excise Tax Act – Section 280.1
10
Canada Revenue Agency. Objections and Appeals
11
Canada Revenue Agency. Voluntary Disclosures Program