When a business sale includes the premises, the seller usually collects no GST/HST on the real property at all. Excise Tax Act section 221(2) relieves the supplier of the duty to collect where the purchaser is registered, and section 228(4) makes the purchaser report and pay that tax itself. The building is the one asset in the deal that moves this way.
Key takeaways
SECTION 01 OF 10
Division V opens with a duty that sounds absolute. Section 221(1), Collection of tax: “Every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax under Division II payable by the recipient in respect of the supply.”
Subsection (2), marginal note Exception, removes real property from that machinery: “A supplier… who makes a taxable supply of real property by way of sale is not required to collect tax under Division II payable by the recipient in respect of the supply where” one of four conditions is met. The supply stays taxable and the tax stays payable; only collection moves.
A statement of adjustments showing no GST/HST on the building is usually the statute working, not the lawyer forgetting: “the buyer doesn’t pay HST to the seller at closing at all” on many deals between registered businesses.
SECTION 02 OF 10
Paragraph (a) covers a supplier who “is a non-resident person”. Paragraph (b), which fires on most owner-operator deals, requires that “the recipient is registered under Subdivision D”, subject to a carve-out for an individual buying housing or a burial plot. Paragraph (b.1) reaches an election “under section 2 of Part I of Schedule V” — CRA’s Form GST22; and (c), a prescribed recipient.
The limb matters: (a) turns on the vendor, (b) on the buyer. The exception is confined to sales — CRA: “These rules only apply to taxable sales of real property. They do not apply, for example, if you lease real property or supply it in any other way.” A vendor who keeps the premises and leases them never enters this mechanism.
SECTION 03 OF 10
The Act uses two tests. Section 123(1) defines a registrant as “a person who is registered, or who is required to be registered, under Subdivision D of Division V”. Paragraph 221(2)(b) does not use that defined term — it asks whether the recipient “is registered under Subdivision D”. Paragraph 228(4)(a) does use it.
Collection and reporting are not asked in the same language: a buyer required to register but not yet applied answers one and not the other. A verifiable registration number is the only version of that fact worth having — Treadstone Law on registration dates.
SECTION 04 OF 10
Subsection 228(4), Real property and emission allowance — self-assessment, engages where 221(2) has done its work: “If tax under Division II is payable by a person in respect of a supply of property that is real property”… “and the supplier is not required to collect the tax”.
Paragraph (a) applies “where the person is a registrant and acquired the property for use or supply primarily in the course of commercial activities of the person”; that person must, by its ordinary filing deadline, “pay the tax to the Receiver General and report the tax in that return” — CRA names the box, “report the tax due on line 205”.
Paragraph (b) catches everyone else — a non-registrant, or a registrant not using the property primarily commercially — who must pay “on or before the last day of the month following the calendar month in which the tax became payable” and file a return “in prescribed form” — GST60. “You cannot file Form GST60 electronically.” Treadstone Law explains self-assessing in practice.
SECTION 05 OF 10
For a registrant buying premises it will operate from, the tax reported under 228(4)(a) and the credit under section 169(1) land in the same return and cancel — but the credit depends on the reporting. Subsection 169(4), Required documentation: “A registrant may not claim an input tax credit for a reporting period unless”… “the registrant has so reported the tax in a return filed under this Part”.
The cancellation is only as complete as the commercial use. For a corporation or partnership acquiring capital real property, CRA gives three bands: no credit where “the intended use of the real property in commercial activities is 10% or less”; in between, “you can claim an ITC based on the percentage of use in commercial activities”; a full credit at 90 per cent or more. Premises half let residentially leave the buyer reporting tax on the whole price and recovering only part.
SECTION 06 OF 10
Real property has its own timing rule, and it is not the day money moves. Section 168(5), Sale of real property, makes tax payable “in any other case, on the earlier of the day ownership of the property is transferred to the recipient and the day possession of the property is transferred to the recipient under the agreement for the supply”.
That date decides whether 221(2)(b) was satisfied, fixes the 228(4)(a) deadline, and can fall before closing where possession passes early.
SECTION 07 OF 10
The section 167 election and subsection 221(2) answer different questions: whether tax is payable at all, and who accounts for it. Our articles on the election on an asset sale and Form GST44 and when it fails cover its conditions; this is what it does to the building.
Subsection 167(1.1), marginal note Effect of election, provides that “no tax is payable in respect of a supply of any property or service made under the agreement other than” three listed categories. Real property is in two: “where the recipient is not a registrant, a taxable supply by way of sale of real property”, and “a taxable supply of property by way of lease, licence or similar arrangement”. A non-registrant buyer therefore gets no relief on the building even inside an election, and a retained-and-leased building is outside it — see whether a rental building rides along.
The third limit is quietest: relief attaches to a supply “made under the agreement” for the business. Where the operating company sells the business and a holding company conveys the land under its own agreement, that conveyance is not such a supply, and the building falls back to 221(2). See the pre-closing carve-out.
One shorthand worth correcting: Treadstone Law says “The going-concern election is not available for sales of real property or certain other assets.” The provision is narrower. Where both parties are registrants and the election is valid, the building is inside it.
SECTION 08 OF 10
Fail paragraph 221(2)(b) and the default revives: the vendor must collect. CRA puts it without qualification — “If you make a taxable sale of real property, you generally have to charge and collect the tax on the sale, even if you are not registered for the GST/HST.” The building’s tax becomes cash the buyer funds at closing.
Nor can the buyer recover it. Section 169(1) gives a credit only where the tax becomes payable “during a reporting period of the person during which the person is a registrant”. Section 171(1), Person becoming registrant, is narrow: it applies “Where at any time a person becomes a registrant and immediately before that time the person was a small supplier”, and deems tax equal to basic tax content, not the tax paid.
The fix is scheduling. Subsection 240(3) permits voluntary registration by a person “engaged in a commercial activity in Canada”, and CRA allows a lag: “the CRA will accept an earlier effective date, provided that the date is within 30 days of the date the application for registration is received”. Thirty days is the entire margin; our article on the registration a buyer forgets works the timetable.
SECTION 09 OF 10
Handing the tax to the vendor to remit does not discharge the buyer. CRA: “Note that if the recipient pays the tax to the supplier in error, the obligation to self-assess the tax under subsection 228(4) is not relieved.” That is GST/HST Memorandum 19.1, stamped October 1997 with a January 2002 notice of change — old enough that its form names are superseded, and cited as CRA’s position, not the provision.
Section 296(1) lets the Minister assess “any tax payable by a person under Division II”. The way back is section 261, Rebate of payment made in error — but only on an application filed “within two years after the day the amount was paid or remitted by the person”, on a mistake that surfaces later.
SECTION 10 OF 10
A written assurance that the sale is exempt is not neutral either. Section 194, Incorrect statement, applies “where a supplier makes a taxable supply by way of sale of real property and incorrectly states or certifies in writing to the recipient of the supply that the supply is an exempt supply”: the consideration is deemed tax-included and the supplier deemed to have collected — but only “except where the recipient knows or ought to know that the supply is not an exempt supply”. A buyer with advice is not the buyer it protects.
So record as facts, not assumptions: each party’s verified registration number; which paragraph of 221(2) is relied on; the buyer’s undertaking to self-assess; and an indemnity if any proves wrong. Where title sits in a nominee, settle who the recipient is — Treadstone Law on bare trusts and nominees, and HST in an asset sale for the other assets.
Two boundaries. The mechanism is federal and works the same way wherever the property sits, but no rate appears here: it differs by province and changes. And land transfer tax is a separate provincial charge outside the Excise Tax Act — how Ontario levies it.
Usually not. Section 221(2) of the Excise Tax Act relieves the supplier of the duty to collect where the recipient is registered under Subdivision D; the tax is still payable, but section 228(4) shifts the accounting to the buyer, who self-assesses it directly on their own GST/HST return.
Not automatically. Section 167(1.1) lists real property twice among the election’s carve-outs: a non-registrant buyer gets no relief on the building even inside an election, and a building the seller keeps and leases falls outside the election entirely, because relief only reaches supplies made under that agreement.
The default reporting duty reverts to the seller, who must collect the tax in cash at closing, and the buyer cannot claim an input tax credit for it, because section 169(1) only credits tax paid during a reporting period in which the buyer was already a registrant. The fix is registering with enough lead time, since CRA will only backdate an effective date up to 30 days before the application.
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