GST/HST on selling business assets vs selling real property

A business sale can include equipment, inventory, goodwill and a building. GST/HST treats the building differently from the rest, and the rules about who collects and reports the tax differ as well. This page sets the sale of business assets beside the sale of real property, comparing taxable status, collection and the election for a business sale. It covers the federal tax under the Excise Tax Act only. Provincial taxes, such as land transfer tax, are separate and are not covered here, so check the rules where the business is.

Selling business assets

The Act defines a taxable supply as a supply made in the course of a commercial activity, and a commercial activity includes a business carried on by the person, other than one carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership all of whose members are individuals, except to the extent the business involves making exempt supplies. An exempt supply is one included in Schedule V. Section 141.1(1)(a) deems a supply, other than an exempt supply, of personal property last acquired for use in the person’s commercial activities to be made in the course of the commercial activity, so a registrant’s sale of such equipment is a taxable supply unless Schedule V lists it. Section 221(1) says a person who makes a taxable supply shall collect the tax payable by the recipient, so the seller collects.

• Taxable by default when the seller is a registrant and no Schedule V entry or election applies
• The seller collects the tax from the buyer under section 221(1)
• Goodwill is dealt with in section 167.1, which sets its own conditions

Selling real property

The definition of commercial activity also covers a person’s supply of its real property, other than an exempt supply. Schedule V, Part I, section 2 makes some sales of residential complexes exempt: a sale by a person who is not the builder of the complex, unless the seller claimed an input tax credit on the last acquisition or on an improvement, or the paragraph (b) conditions are met. A taxable sale is different on collection. Under section 221(2), a supplier, other than a prescribed supplier, is not required to collect the tax in listed cases, including where the recipient is registered and, for an individual recipient, the property is neither a residential complex nor a cemetery plot or similar place.

Where the two differ

Where the supplier is not required to collect and is not deemed to have collected, section 228(4) puts the payment on the buyer. A registrant who acquired the property for use or supply primarily in its commercial activities pays and reports the tax in its own return. In any other case the buyer files a separate return and pays by the end of the following month. The seller of other business assets has no such exception in the sources read. CRA also says a person whose only taxable GST/HST activity is selling real property other than in the course of a business does not have to register.

The section 167 election works differently for each. CRA says the election cannot be made if only one or more assets are sold, or if the seller is a registrant and the buyer is not. The buyer must acquire all or substantially all of the property reasonably necessary to carry on the business or part of it. Even then, section 167(1.1)(a) keeps tax payable on a taxable sale of real property when the recipient is not a registrant. For the answer to the narrower question, see do I charge HST when I sell my business.

Which fits depends on the facts

• If the sale is of a business or part of one with all or substantially all necessary property, the section 167 election may be available, and CRA’s form for it is the GST44
• If only individual assets or only the building are sold, CRA says the election cannot be made
• If the property is residential, the Schedule V exemption turns on whether the seller is the builder and claimed input tax credits
• If the property is commercial, whether the buyer is registered is one of the section 221(2) cases that decide who collects and who self-assesses
• If the real property is bought separately from the business, check whether the section 167 election is available at all, since it needs all or substantially all necessary property

Each of these points depends on registration status and on the wording of the agreement, so a tax professional should confirm how they apply.