- There is no single tax number for selling a business, because the bill depends on whether you sell shares or assets and how the price is split.
- If you sell qualifying shares, the lifetime capital gains exemption may reduce the gain, and the CRA lists it at $1,250,000 for dispositions after June 24, 2024.
- GST/HST, PST and non-resident rules can add separate tax steps to a sale, so the deal structure should be reviewed with an accountant before you sign.
If you are planning to sell your business, the first question is usually how much of the price you will keep. The honest answer is that it depends on how the deal is built, who owns the business, and what is being sold.
This article explains the main things that move the tax bill in British Columbia. It does not give a rate or a final figure, because that needs your numbers. An accountant and a lawyer can work through them with you.
This article covers the law of British Columbia.
Why there is no one answer
Tax on a business sale is not a flat charge on the price. It is worked out from what you receive, what you paid or invested, how the price is divided among the assets, and which tax rules apply to you as a seller. The current capital gains inclusion rate and the federal and BC tax rates change over time, so confirm them with an accountant for the year of your sale.
These are the points that usually drive the result:
- Whether you sell shares of a corporation or the business assets.
- How the price is allocated between equipment, inventory, receivables and goodwill.
- Whether your shares qualify for the lifetime capital gains exemption.
- Whether GST/HST or PST applies to any part of the sale.
- Whether you are a resident of Canada for tax purposes.
Selling shares or selling assets
In a share sale, the buyer takes over the company. A change in share ownership does not change the tax values of the corporation's assets, and share purchases are generally not subject to GST/HST. The buyer also takes the company with its history and liabilities.
In an asset sale, the price must be allocated to each asset at fair market value, with the remaining balance attributed to goodwill. Buyers often prefer assets, and sellers often prefer shares, so this is commonly a point of negotiation.
| Point | Share sale | Asset sale |
|---|---|---|
| What the buyer gets | The company, with its history and liabilities | The assets chosen in the deal, with price allocated to each |
| GST/HST | Generally not subject to GST/HST | May apply unless an election is available |
| Tax values of assets | Do not change | Based on the allocation |
Goodwill and how the price is split
On an asset purchase, goodwill is depreciable property in CCA Class 14.1, claimed at 5%, since January 1, 2017. The buyer's allocation should match what the seller reports. That means you and the buyer need to agree on the split, and your accountant should review it.
For PST purposes, the parties cannot raise the goodwill price and lower the taxable-asset prices to avoid PST, and the Province may ask for support for asset values. A split that looks designed to reduce tax can cause problems for both sides.
The lifetime capital gains exemption
If you sell shares of a qualified small business corporation, the lifetime capital gains exemption may reduce your taxable gain. The CRA lists it at $1,250,000 for dispositions after June 24, 2024, with a deduction limit of $625,000, compared with $1,016,813 before June 25, 2024. The CRA lists the 2025 figure as proposed.
Whether your shares qualify depends on tests that turn on your company's history and assets. Do not assume you qualify. Ask your accountant to confirm this well before you sign a sale agreement.
Other tax rules that can affect a sale
- GST/HST: when a buyer acquires all or substantially all (at least 90%) of the property needed to carry on the business, the parties may jointly elect on Form GST44 so no GST/HST is payable on the sale. The election is unavailable where the supplier is a registrant and the recipient is not.
- PST: on an asset sale, goodwill, accounts receivable, franchise fees, inventory, real property and shares are non-taxable, and inventory is exempt if the buyer gives a PST number or a Certificate of Exemption - General (FIN 490).
- Non-resident sellers: a purchaser of taxable Canadian property from a non-resident must remit 25% of the amount by which the cost exceeds the certificate limit, and with no certificate the limit is zero. A purchaser is not liable if it had no reason to believe the seller was non-resident after reasonable inquiry, or if the Minister issued a certificate.
What to do next
- Ask your accountant to model both a share sale and an asset sale before you set a price.
- Confirm whether your shares could qualify for the capital gains exemption.
- Get a draft price allocation and check it against what the buyer will report.
- Ask whether a GST/HST election is available for your sale.
- Have a lawyer review the agreement so the tax terms match what you negotiated.
Frequently asked questions
Is there a set tax rate when I sell my business in BC?
No single rate applies to every sale. The result depends on whether you sell shares or assets, how the price is allocated and whether any exemption applies. Your accountant can apply the current federal and BC rates to your numbers.
Can I use the capital gains exemption if I sell assets?
The CRA describes the exemption as relating to qualified small business corporation shares, so it is relevant to a seller selling shares rather than assets. If you are planning an asset sale, ask your accountant whether a different structure could change the result.
Do I charge GST/HST on the sale of my business?
Share sales are generally not subject to GST/HST. On an asset sale, the parties may jointly elect on Form GST44 so no GST/HST is payable if the buyer acquires at least 90% of the property needed to carry on the business. The election is not available where you are a registrant and the buyer is not.
Who pays PST on the assets I sell?
The buyer deals with PST on taxable items. A buyer without a PST number must self-assess PST using the Casual Remittance Return (FIN 405). You may still be asked to consent to the buyer's PST clearance application.
Sources
- gov.bc.ca – PST: Buying and selling a business — www2.gov.bc.ca
- Income Tax Act, s.116 — Justice Laws (federal)
- Excise Tax Act, s.167 — Justice Laws (federal)
- CRA – Buying a business — canada.ca
- CRA – Buying an existing business — canada.ca
- CRA – Line 25400 Capital gains deduction — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,358.88, tax included. Third-party fees are extra.