The GST and QST are considered value-added taxes charged on most supplies made in Canada of goods, services, real property and intangible property.  The GST and QST are charged on the value of the consideration for the taxable supply.

When property is sold through an asset sale of a dental clinic, the transaction will generally be subject to GST/QST because personal property used in a commercial activity is deemed to be a taxable supply when sold or leased.  Commercial real property is also a taxable supply when sold or leased. Therefore, when selling a dental practice, it is important to keep in mind that the sales tax consequences differ depending on how a deal is structured, meaning whether the dentist is purchasing assets or shares.


When purchasing the shares of a dental clinic from another dentist, there is no GST or QST applicable on the transaction since the purchase of shares is considered an exempt supply for the purposes of the Excise tax act.


When purchasing the assets of a dental practice, one of the tax considerations must be to determine whether GST/QST apply to the transaction and if so, are there any relieving provisions in such a case. The Excise Tax Act, more specifically section 167 contains provisions for two elections that apply when selling the assets of a business or part of a business.

In general, a dentist may sell the assets of his dental practice without any GST/QST payable (with some exceptions), if certain conditions are met and if the purchasing (recipient) and selling (supplier) dentists make a joint election.


1) The purchaser must be purchasing a business or part of a business.

2) The purchaser must be acquiring ownership, possession or use of all or substantially all of the property (generally  90% or more) that can reasonably be regarded as being necessary for the purchasing dentist to be capable of carrying on the dental practice after the purchase.

3) The purchasing and selling dentists must either be:

  • Supplier (seller) is NOT a registrant and Recipient (purchaser) is NOT a registrant

  • Supplier (seller) IS a registrant and Recipient IS a registrant (purchaser)

  • Supplier (seller) is NOT a registrant and Recipient (purchaser) IS a registrant

In summary, section 167(1) specifies that where a supplier (i.e. selling dentist) sells a business or part of a business to a recipient (i.e. purchasing dentist) and the above conditions are met, then the supplier and the recipient may make a joint election such that the supplier DOES NOT need to charge GST/QST and the recipient DOES NOT need to pay GST/QST. The transaction is considered a wash for sales tax purposes.


Similar to section 167 discussed above, section 167.1 addresses the sales tax consideration regarding goodwill of a practice. When part of the purchase price for the assets of a dental practice is attributed to goodwill (patient dental records), and if the conditions under 167 explained above are met, then GST/QST will not be payable on the consideration paid for goodwill. Unlike the election under section 167, there is no election necessary under section 167.1 since it will apply automatically when all of the requirements are met.



When a section 167 election applies in the context of a dental practice purchase, GST/QST generally will not apply to the supplies made under that agreement.  However, according to paragraph 167(1.1), GST/QST will be applicable to the following supplies and no election is available:

  • a taxable supply of a service that is to be rendered by the vendor or seller;

  • a taxable supply of property by way of lease, licence or similar arrangement; and

  • where the purchaser is not a registrant, a taxable supply by way of sale of real property

In the course of a sale of a dental practice, it is common to purchase leasehold improvements, (considered real property) as well as real estate in which the clinic operates. The election in section 167 does not apply to the supply of real property when the recipient (purchasing dentist) is not a registrant for sales tax purposes. Since a dentist is not required to register for GST/QST because the supply of dental services is not a taxable service, it is normal that a purchasing dentist will not be registered for GST/QST. In summary, the consideration price paid for leasehold improvements will be subject to GST/QST but the selling dentist may be eligible to apply for a rebate under section 257 of the Excise Tax Act.


Another element to consider when selling a dental practice is the treatment of restrictive covenants given by the selling dentist at closing.  According to the tax authorities, a restrictive covenant can be considered to be a supply of a service, as also stated in the  Manrell  decision.  For the purposes of GST and QST, since a restrictive covenant will be taxed like a service which falls under one of the exceptions to the section 167 election, GST/QST is applicable to a portion of the purchase price attributable to the restrictive covenant.


A section 167 election is not simple and straightforward in its application and determining whether the election applies can be quite challenging.  Our team regularly assists its clients in  navigating the complexities of the sales tax rules in the context of a dental clinic acquisition.