Can we make a section 167 election if only some assets are sold?

The section 167 election lets a seller and a buyer agree that no GST/HST is payable on the sale of a business, or part of a business, apart from a few supplies the Act lists. The word that matters is business. A buyer who picks up some equipment and a vehicle has bought assets, not a business, and the election is built for the second kind of sale.

What the Act requires

Subsection 167(1) of the Excise Tax Act applies where a supplier sells a business or part of a business and, under the agreement, the recipient acquires ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary for the recipient to be capable of carrying on the business or part as a business. The test is whether the buyer is acquiring enough of the property to be capable of carrying on the business, or the part, as a business. Paragraph 167(1)(b) also rules the joint election out where the supplier is a registrant and the recipient is not.

How the CRA describes it

The CRA’s guidance on selling a business says the election cannot be made if you sell only one or more assets of your business, or if you are a registrant and the purchaser is not. It also says the buyer must be capable of carrying on the same kind of business the seller carried on, using the property acquired under the agreement. Property the buyer needs but does not acquire in the deal, such as land and a building bought separately, must fit within a small remainder of the value of the property needed, which the CRA states as a percentage.

A part of a business can qualify

The Act and the CRA both refer to part of a business, so a sale of less than the whole business is not ruled out. The CRA sends readers to its Form GST44 page for what constitutes a part of a business. Selling just one location raises that question directly, and an accountant can say whether a particular site qualifies.

If the sale falls short

If the sale does not meet the test, the section 167 election is not available for it, so ask an accountant how GST/HST applies to what is sold. Who files the form and by when is covered in who signs the section 167 election.