One of the key election forms is relating to GST/HST. Under section 167 of the Excise Tax Act, a joint election between the vendor and purchaser can be made so that the transfer of business assets takes place on a tax-free basis. The election form relieves the vendor from being required to collect and remit GST/HST on the sale of certain assets of the business. Similarly, the purchaser would not need to pay nor need to claim GST/HST input tax credits on the purchase of these assets. Certain conditions will need to be met to ensure eligibility for the election. The joint election requires Form GST44, GST/HST Election Concerning the Acquisition of a Business or Part of a Business, to be completed and signed by both parties and filed with the Canada Revenue Agency (“CRA”) on a timely basis.
As good practice, it may be beneficial to add clauses on these elections in the agreement of purchase and sale to ensure that both parties agree to each election that is to be filed. It may also be beneficial to have the election forms and letters prepared in advance of closing, so that all documents can be signed on the date of closing. This will also minimize the risk that any elections are filed late.
It is important to note that the above list of elections is not exhaustive; there may be additional elections available depending on the particulars of the transaction. In addition, the elections mentioned above only refer to required filings with the federal government. Some provinces such as Quebec and Alberta may require similar elections to be filed. Different forms may have to be completed and submitted to these provinces.
Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Contact your Crowe Soberman advisor for more information.