What happens to unused loss carryforwards in the target company if I buy its shares instead of its assets?

In a share purchase, the target corporation continues to exist, so its accumulated losses stay with it in principle, but buying control of a corporation triggers what the Income Tax Act calls an acquisition of control, which comes with real restrictions on those losses. The corporation's tax year is deemed to end immediately before the change in control, and going forward, non-capital losses from before that point can generally only be used against income from the same business, or a similar one, that the corporation was actually carrying on beforehand — not against unrelated income the new owner might bring into the corporation. Unused capital losses generally can't be carried forward past the change in control at all.

This means a target's loss carryforwards are often worth less to a buyer than their face value might suggest, since using them depends on continuing a similar business, not simply on having losses sitting on the books. In an asset purchase, by contrast, the buyer is a separate entity, and the seller's loss carryforwards generally stay behind with the selling corporation — they don't come along with the assets being purchased at all.

Getting an accountant to properly value what these losses are realistically worth, given the actual restrictions, should inform the purchase price, not just the sale structure.