How do I check HST compliance when buying a business?

GST/HST checks on a business purchase have two parts: whether the seller has been filing and remitting, and whether the purchase itself should carry the tax. The CRA’s guidance for sellers covers both, which makes it a useful list of what a seller should already be able to show a buyer.

The seller’s filing and remitting record

The CRA says closing a GST/HST account means filing a final return and remitting any amount owing, so ask for the filing history to date and confirm that the final return is filed or planned. A gap between the tax the business charged customers and the tax its returns report is the discrepancy to look for. Provincial sales taxes differ from province to province, so your accountant should confirm what else applies.

Whether the joint election applies

In an asset purchase, buyer and seller may be able to elect jointly on Form GST44 so that no GST/HST is payable on the sale. The CRA requires that the seller is selling the business it carried on, or part of it, and that the buyer acquires nearly all the property needed to run it and can carry on the same kind of business with it. The election is not available for the sale of individual assets, or where the seller is a registrant and the buyer is not.

What the election leaves taxable

A valid election does not remove every charge. The CRA says the seller still charges GST/HST on taxable services to be rendered to the buyer, on taxable supplies by way of lease or licence, and on taxable sales of real property to a buyer who is not a registrant. The buyer files the election with the CRA by the due date of its next GST/HST return in which tax would otherwise have been payable, so the timing belongs on the closing checklist.

Share purchases

In a share purchase no business assets change hands, so the election is not the question and the corporation’s own record is. It stays the registrant, so ask for its filing history and any CRA correspondence about reviews or assessments, and confirm the CRA has the correct directors on file after closing.