Should I sell the shares or the assets of my Ontario business?
Whether to sell shares or assets depends mainly on tax, liabilities and which contracts need to move, and sellers and buyers often want different things. Many sellers look first at a share sale because an individual who sells qualified small business corporation shares may claim the lifetime capital gains exemption, which is $1,250,000 for 2025, giving a maximum deduction of $625,000.
To qualify, the shares must be of a small business corporation, meaning a Canadian-controlled private corporation where 90% or more of asset value meets the active-business tests at the time of sale. You must also have owned them, or had a related person or partnership own them, for the 24 months before the sale, and more than 50% of asset value must have been used mainly in an active business in Canada throughout that time. When the corporation sells its assets, the gain belongs to the corporation and the exemption does not apply to it directly.
In an asset sale, the GST/HST election on Form GST44 can avoid GST/HST on the transfer, but not if the seller is a registrant and the buyer is not. The better structure depends on your facts, so confirm it with a lawyer and an accountant.
Key takeaways
- The lifetime capital gains exemption is for an individual selling qualifying shares, with a maximum deduction of $625,000 for 2025, and it does not apply directly to a corporation selling its assets.
- Shares qualify only if the corporation meets the 90% test at the time of sale, the 24-month ownership rule and the more-than-50% active business test.
- In an asset sale, a Form GST44 election can avoid GST/HST, but tax can still apply to a taxable lease or to real property sold to a buyer who is not a registrant.
- If the corporation sells all or substantially all of its property, shareholders must approve it by special resolution, and a dissenting shareholder may seek fair value.