Should I sell shares or assets when selling my Ontario business, and how does the tax differ?
It depends on your facts, and a share sale often favours the seller while an asset sale often favours the buyer. In a share sale, you may be able to claim the lifetime capital gains exemption, which is $1,250,000 of gains for dispositions after June 24, 2024 and for 2025. Only one-half of a capital gain is taxable.
An asset sale raises different issues. If the sale proceeds credited to a depreciation class make its undepreciated capital cost negative, the excess is recaptured depreciation and is included in your income in full. How the price is split among assets also matters, because the part attributable to each property is that property's proceeds for you and its cost for the buyer. Buyers often prefer assets because they record each asset at its allocated cost.
The exemption is not automatic either. The shares must meet the qualified small business corporation tests, including a 24-month holding period. Because the result turns on your numbers, ask an accountant or lawyer to compare both structures before you answer the buyer.
Key takeaways
- A share sale may let you claim the lifetime capital gains exemption, which is $1,250,000 of gains for dispositions after June 24, 2024 and for 2025.
- In an asset sale, recaptured depreciation is included in your income in full, so putting more of the price on depreciable equipment can raise your tax.
- If the sale agreement sets reasonable prices for individual assets, the CRA uses those prices, so the allocation clause deserves close attention.
- A share purchase is generally not subject to GST/HST, while an asset purchase can be unless the parties elect.