Who pays GST/HST on the building when I buy a business with its real estate?

A business sale that includes a building or land puts real property inside the deal, and real property has its own GST/HST rules. Whether the sale of a particular building is a taxable supply is a separate question for an accountant. This page covers what happens once it is: who collects, who pays, and how the section 167 election for a business sale fits in. It covers federal GST/HST only.

The default: the seller collects

Section 221 of the Excise Tax Act requires a person who makes a taxable supply to collect, as the Crown’s agent, the tax payable by the recipient. For the seller of a building, that means the seller collects the tax unless one of the exceptions in section 221(2) applies.

When the buyer self-assesses

Section 221(2) says a supplier of a taxable sale of real property is not required to collect where, among other cases, the recipient is registered, with extra conditions if the recipient is an individual. Section 228(4) then puts the payment on the buyer. A registrant that acquired the property primarily for commercial activities pays the tax and reports it in its return for the period in which the tax became payable. In other cases the Act ties the payment date to the month after the tax became payable and requires a separate prescribed return.

How the section 167 election changes it

If the sale qualifies and the seller and a registered buyer jointly make the election, and the buyer files it on time, no tax is payable on the supplies made under the agreement, apart from the exceptions the Act lists. A building sold under the agreement is therefore generally covered. One exception is a taxable sale of real property to a buyer who is not a registrant. The CRA also says the election cannot be made where the seller is a registrant and the buyer is not.

Check before closing

Confirm the buyer’s registration status, whether the election is being made, and what the agreement says about tax on the building. The self-assessed amount appears in the buyer’s own return, so ask an accountant how it is reported and whether it is recoverable. Provincial taxes sit outside this page: Ontario, for example, has its own Land Transfer Tax, covered on the province’s Land Transfer Tax pages. Registration is covered in whether you must register for GST/HST after buying a business.