Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST policy statement P-012R

Date of Issue

Issued April 9, 1992

Revised: January 04, 1999

Subject

LIABILITY FOR NET TAX ON TRANSFER OF BUSINESS ASSETS

Legislative Reference(s)

Sections 165 and 221, and subsections 123(1) and 325(1), of the Excise Tax Act(ETA)

National Coding System File Number

N/A

Effective Date

January 1, 1991 for the GST

April 1, 1997 for the HST

Text

Issue and Decision

Where a person sells or transfers all or some of its assets, does the purchaser of the assets become liable for all or part of the net tax owing for the reporting periods ending before the date of the sale, or for the reporting periods during which the transfer occurs?

"Person" is defined in subsection 123(1) of the Excise Tax Actand means "... an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind". Most supplies of goods or services involve two persons: a 'supplier' and a 'recipient'. Generally, the recipient of a supply is liable under section 165, Division II, to pay tax in respect of the supply, and the supplier is liable under section 221 to collect this amount from the recipient. Normally, neither person is responsible for the other's tax liability.

Nevertheless, where a person sells or transfers all or some of its assets or other "property" (including money), the purchaser or transferee "may" become liable for net tax or other "amounts" owing by the person for the reporting periods ending before the date of the sale or for the reporting periods during which the transfer occurs if the transferee is assessed under ss. 325 of the Act, and if the requirements of that provision apply. Subsection 325(1) applies where a person transfers property either directly or indirectly to

(a) the transferor's spouse or an individual who has since become the transferor's spouse,

(b) an individual who was under eighteen years of age, or

(c) another person with whom the transferor was not dealing at arm's length,

Where subsection 325(1) applies, both parties are jointly and severally liable for an amount calculated under a formula set out in subsection 325(1). Generally, the property must have been transferred for an amount which is less than the fair market value of the property at the time of the transfer for liability to occur. Note that, according to subsection 325(4), subsection 325(1) does not apply to certain transfers of property made by an individual to the individual's spouse.