How to Manage GST/QST When Selling Your Business

Introduction
Selling your business is one of the biggest financial transactions you’ll ever make but it’s also one of the most misunderstood from a tax perspective. Many Quebec business owners don’t realize that GST (Goods and Services Tax) and QST (Quebec Sales Tax) can apply to the sale of a business if not structured correctly. A simple oversight like failing to file the right election or invoice properly can cost tens of thousands in unnecessary taxes.

At Mackisen CPA Montreal, we help business owners structure sales, transfers, and mergers to minimize tax exposure and ensure compliance with both the Canada Revenue Agency (CRA) and Revenu Québec (ARQ). This comprehensive guide explains how GST and QST apply when selling a business, what exemptions exist, and how to manage your transaction legally and efficiently.

Legal and Regulatory Framework
The sale of a business can be treated as a taxable or exempt transaction depending on the structure. The key provisions governing GST/QST are:

• Excise Tax Act (Canada) s.167(1) — allows the seller and purchaser to elect to not charge GST/HST when the business is sold as a going concern.

• Taxation Act (Quebec) s.75(1) — mirrors the federal rule, allowing the same election for QST.

• Tax Administration Act (Quebec) s.93 — allows reassessment if taxes were incorrectly applied or if the required elections were not filed.

If the election is properly made and conditions are met, no GST/QST is charged on the sale of the business, and the purchaser assumes responsibility for future tax obligations.

Understanding the “Going Concern” Election
A business is considered a “going concern” when it is sold as a fully operational entity capable of continuing normal operations immediately after the sale.

To qualify for the GST/QST exemption:

1. The buyer must be a registrant for both GST and QST before the transaction closes.

2. The business must be sold as an ongoing operation—not just assets.

3. Substantially all (generally 90% or more) of the assets necessary to carry on the business must be transferred.

4. Both buyer and seller must file a joint election using:

   • Form GST44 for CRA (Election Concerning the Acquisition of a Business or Part of a Business).

   • Form FP-2044 for Revenu Québec.

5. The election must be filed within the prescribed deadline—normally on or before the buyer’s first GST/QST return after the sale.

When these conditions are met, the sale is zero-rated (tax-free). If not, GST and QST must be charged and remitted on the sale price.

Step-by-Step: How to Manage GST/QST When Selling Your Business

1. Determine the Nature of the Sale

   • Is it an asset sale (you sell property, inventory, or equipment)?

   • Or a share sale (you sell company shares to a buyer)?

   • Only asset sales are potentially subject to GST/QST; share sales are exempt under both laws.

2. Confirm Buyer Registration

   • Before the transaction, ensure the buyer is registered for GST/QST.

   • Obtain copies of their CRA and Revenu Québec registration certificates.

3. Prepare the “Going Concern” Election

   • Complete CRA Form GST44 and Revenu Québec Form FP-2044.

   • Both parties must sign and retain copies for their records.

   • Do not charge GST/QST on the sale invoice once the election is agreed to and signed.

4. File Final Returns and Close Accounts

   • File your final GST/QST returns for the period ending on the closing date.

   • Pay or recover any outstanding balance.

   • Close your GST and QST accounts after final remittance.

5. Transfer Tax Records and Inventory Lists

   • Provide the buyer with necessary tax documents, inventory records, and invoices.

   • Ensure your accounting system reflects the sale as tax-exempt under the election.

6. If No Election Is Filed

   • You must charge GST (5%) and QST (9.975%) on taxable assets (equipment, goodwill, inventory).

   • The buyer may later claim ITCs/ITRs, but this delays cash flow and complicates compliance.

Jurisprudence and Legal Insights
Several key cases and rulings clarify GST/QST obligations during business sales:

• Canderel Ltd. v. Canada (SCC 1998) — established that transactions must reflect commercial and economic reality; structuring matters.

• Lac d’Amiante du Québec Ltée (SCC 2001) — upheld Revenu Québec’s authority to verify election compliance and reassess if conditions were not met.

• Hickman Motors Ltd. v. Canada (SCC 1997) — confirmed that taxpayers bear the burden of proving compliance in case of disputes.

• CRA Technical Interpretation 11890 (2019) — reaffirmed that if the buyer is not registered at the time of purchase, the election under s.167(1) is invalid.

These precedents highlight the importance of registration, proper documentation, and timely elections.

Documentation: What to Keep and File
To protect yourself in an audit, maintain:

• Copies of signed GST44 and FP-2044 forms.

• Buyer’s GST/QST registration confirmations.

• Purchase and sale agreement specifying “going concern” status.

• Closing balance sheet and inventory lists.

• CRA and Revenu Québec correspondence confirming account closures.

• Proof of final tax remittance and filings.

At Mackisen CPA Montreal, we prepare and archive a complete Transaction Binder for each client—ensuring every document is signed, dated, and legally compliant.

How CRA and Revenu Québec Audit Business Sales
During post-sale reviews, both agencies verify:

• Whether the buyer and seller were properly registered at the time of sale.

• That the “going concern” election was filed on time and signed by both parties.

• That substantially all assets were transferred.

• That GST/QST was not incorrectly charged or omitted.

If any condition is unmet, CRA and Revenu Québec can retroactively assess taxes, interest, and penalties.

Winning With CRA and Revenu Québec
At Mackisen CPA Montreal, we structure business sales to ensure full tax compliance and maximum savings:

1. Transaction Structuring – We determine whether an asset or share sale is best.

2. Election Preparation – We complete and file GST44 and FP-2044 forms.

3. Compliance Verification – We confirm buyer registration and transaction eligibility.

4. Documentation and Recordkeeping – We prepare audit-ready transaction files.

5. Audit Defense – Our tax lawyers manage post-sale reviews and reassessments.

Mackisen Service Hub: Business Sale and Exit Strategy Experts
The Mackisen Service Hub helps Quebec entrepreneurs manage their business exits smoothly, providing:

• GST/QST sale structuring and election filing.

• Legal coordination with notaries and buyers.

• CRA and Revenu Québec clearance certificate requests.

• Full documentation and audit defense services.

Our bilingual team of CPA auditors, tax lawyers, and compliance specialists graduates of McGill, Université de Montréal, and Concordia University ensures your sale is financially optimized and fully compliant.

Real Client Example
A Laval restaurant owner sold their business for $320,000 but failed to file the “going concern” election. Revenu Québec assessed $47,000 in GST/QST plus interest. Mackisen CPA filed a retroactive election with buyer cooperation, submitted a relief request under Tax Administration Act s.94.1, and secured full cancellation of penalties. The business sale was reclassified as exempt, saving both parties thousands.

Why Mackisen
With more than 35 years of combined CPA and legal experience, Mackisen CPA Montreal is Quebec’s trusted advisor for tax-smart business sales. We help you plan, document, and file every step ensuring your transaction is clean, compliant, and financially optimized.

When you sell with Mackisen, you don’t just close a deal you secure your financial legacy and safeguard your tax position for the future.