Do I pay GST/HST when I buy a small business in Canada?

Buying a small business can involve GST/HST, because section 167 of the Excise Tax Act deals with the supply of a business or part of a business. The CRA says a seller may be able to jointly elect with the purchaser to have no GST/HST payable on the sale. Whether the election is open to you depends on what you are buying and who is registered. Provincial taxes sit outside the election.

What the election needs

Under section 167, where a supplier supplies a business or part of a business that it established, carried on or acquired, the supplier and recipient may make a joint election if the recipient is acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary to carry on the business or part of it. The Act excludes the case where the supplier is a registrant and the recipient is not. The CRA adds that the election cannot be made if the seller sells only one or more assets of the business.

What the election does not remove

Even with an effective election, the CRA says the seller still charges GST/HST on taxable services to be rendered to the purchaser, taxable supplies of property by way of lease, licence or similar arrangement, and taxable sales of real property to a purchaser who is not a registrant. Real estate in the deal is covered in who pays GST/HST on the building.

Who files, and the provincial piece

The election is made on Form GST44, and the CRA says the purchaser files it by the due date of its next GST/HST return in which tax would otherwise have been payable. Section 167.1 of the Act has its own rule for goodwill in such a supply. Provincial taxes are separate: British Columbia’s government says PST applies to the taxable goods and software among the assets sold, and that it does not apply to goodwill. Other provinces run their own regimes. Whether you must also register is covered in registering for GST/HST after buying.