Encyclopedia
Goods and Services Tax (GST) going-concern election
An election that can let a buyer and seller of a business's assets avoid paying GST on the sale if conditions are met.
For example: A buyer of a business asks their accountant whether they qualify for the going-concern election. (Illustration only, not a real deal.)
Official source: Excise Tax Act (Justice Laws)
Example only, not a real client. Say you are buying a going-concern retail business, including its inventory, equipment and goodwill, and the seller also wants to include the leased premises’ fixtures. Your accountant asks whether you and the seller can jointly elect so GST is not charged on the business sale, and whether Form GST44 will be filed on time.
What I’d tell a friend
Treat the GST election as a closing condition, not paperwork for later. If the sale does not qualify, GST on the assets can be a large cash surprise.
Why it matters to you
It can let GST be avoided on the sale of a business's assets when the right conditions are met, usually including the buyer taking on at least 90% of the property needed to carry on the business. Getting it wrong can leave a big GST bill.
How to use it in your deal
Buyers and sellers should get tax advice early to confirm eligibility: the buyer usually must be GST registered, and the seller must be transferring the property needed to carry on the business. Prepare and file the election form on time. Buyers should understand that some real property may still trigger GST self-assessment. Sellers should keep records showing eligibility.
Lawyers include the election in the contract and closing documents, with an indemnity from the buyer if Canada Revenue Agency (CRA) later decides GST was owing. Because GST on a commercial property can be a very large amount, getting this wrong is expensive: either the seller fails to collect tax it owed, or the buyer has to come up with cash it didn't plan for.
Owners selling a business that operates from a property they own personally, and lease to their company, should know the property and the business may be held by different sellers, which complicates the election. Ask your accountant to map who owns what before you list.
Mistakes I see
Assuming it applies to any property sale. Missing filing deadlines. Not checking registration. Splitting assets between related owners without checking how that affects eligibility. Leaving the indemnity out of the contract.
In BC and Vancouver
Federal GST/Harmonized Sales Tax (HST) rules and CRA guidance set the election. BC deals still need a BC lawyer and an accountant on the filing and on any real property in the deal.
Official sources: CRA: selling a business (GST election) · Form GST44 · CRA GST/HST Memorandum 14.4 · CRA GST/HST Memorandum 19.4.1
What it is
When someone sells a business, or part of a business that can run as a business, the seller and buyer may be able to jointly elect so that GST/HST is not payable on most of what is sold under that agreement.
CRA describes the usual test as the buyer acquiring ownership, possession or use of at least 90% of the property needed to carry on the business. Selling a few loose assets, or selling as a GST registrant to a buyer who is not registered, generally does not qualify.
How the election is filed
The joint election is made on Form GST44. A registered buyer generally has to file it by the due date of the GST/HST return for the first period in which tax would otherwise have been payable.
Even with the election, GST can still apply to taxable services the seller will still provide, to leases or licences, and to taxable sales of real property to a buyer who is not a GST registrant. Real property in a deal between registrants often means the buyer self-assesses and, if the property is used in commercial activities, may claim an input tax credit. Get advice on your facts.
How to use it in a BC deal
Write the election, filing responsibility and an indemnity into the purchase agreement before closing. Map who owns the operating assets and who owns any real estate, especially when a related company or the owner personally holds the building.
Share sales are a different GST analysis than asset sales. If the building is sold on its own, the usual commercial real property GST rules apply instead of a business-sale election. Have your accountant and lawyer align before anyone wires a deposit.
Real property and the indemnity
Even with the election, a GST-registered buyer often still self-assesses tax on real property in the deal and then looks to an input tax credit if the property is used in commercial activities. Put filing responsibility and an indemnity in the contract so a later Canada Revenue Agency challenge has a clear home.
Questions to ask before you sign
- Does this sale qualify?
- Is the buyer registered?
- Who files the election?
- Does real property need separate treatment?
Keep reading
Related terms: Asset sale, GST (commercial real property)
- Commercial due diligence checklist for BC buyers
- Selling a business that owns or leases its real estate in BC
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.