One Sibling's US Address Nearly Sank a Family Business Sale

The situation

Andre had run the family's food processing and packaging business in Leamington for close to two decades. His siblings, Alejandro and Cherise, were shareholders but not operators: Alejandro owned and managed a handful of franchised locations of an unrelated national brand, and Cherise had spent the last several years practising as a surgeon at a hospital in the northern United States. All three had inherited their shares from their parents, who had built the company from a single packing line into a supplier that shipped to grocery distributors across North America.

When a US food conglomerate approached Andre about buying the company outright, the siblings agreed it was time. Andre had spent years growing the business past what a single family could comfortably manage, and Alejandro and Cherise, both busy with careers of their own, had long treated their shares more as an inheritance to eventually cash out than a business to run. After months of negotiation, they signed an agreement to sell all of their shares for a total purchase price in the range of $65 million, split roughly in proportion to their holdings: about half to Andre, and roughly a quarter each to Alejandro and Cherise. The buyer's counsel handled most of the drafting, and the siblings' existing accountant coordinated the tax side. Treadstone Law was retained closer to closing to review the purchase agreement on behalf of the three sellers and confirm everything was in order before signatures went on the closing documents.

What the review found

During that review, one detail stood out: Cherise had not lived or worked in Canada for several years. Under the Income Tax Act, an individual's residency for tax purposes is not just about citizenship or where a passport is issued — it turns on where a person's real and settled life is, including their home, their job, and their family ties. Cherise's accountant had prepared her personal returns as a Canadian resident out of habit, but on the facts, she had almost certainly become a non-resident of Canada for tax purposes once she relocated permanently for her surgical practice.

That distinction mattered enormously for this deal. When a non-resident of Canada sells shares of a private Canadian corporation, the purchaser is generally required to withhold a significant portion of that seller's gross proceeds and remit it to the Canada Revenue Agency, unless the seller has first obtained a compliance certificate confirming that the CRA is satisfied with the arrangements for tax on the resulting gain. Without that certificate in hand at closing, the buyer has no choice: the withholding obligation falls on the purchaser personally, so purchasers' counsel will not release funds without either the certificate or a formal arrangement to cover the risk.

The problem was timing. Closing was scheduled in under six weeks. Applying for a compliance certificate is not fast — the CRA typically takes several months to review the application, verify the seller's cost basis in the shares, and issue a decision. There was no realistic way to get a certificate before the agreed closing date, and the buyer's food conglomerate parent had its own internal deadlines tied to its fiscal year that made a lengthy delay unattractive to everyone at the table.

What we did

1. Confirmed Cherise's residency status in writing. We asked her accountant to formally document the residency analysis rather than rely on the assumption baked into her past tax filings. Getting this right mattered on both sides: understating the exposure would leave the buyer under-withheld and exposed, and overstating it would tie up more of Cherise's money than necessary.
2. Separated Cherise's closing mechanics from her siblings'. There was no reason Andre's and Alejandro's proceeds needed to be affected by an issue that belonged to only one of the three sellers. We restructured the closing so their shares of the purchase price would fund normally, while a distinct holdback applied only to Cherise's portion.
3. Negotiated an escrow instead of a flat withholding. Rather than have the buyer simply withhold and remit a share of Cherise's gross proceeds to the CRA outright — money she would only see again after the certificate process concluded, potentially with no adjustment for her actual cost in the shares — we negotiated an escrow arrangement with the buyer's counsel. A defined portion of her proceeds would be held by a third-party escrow agent, to be released once the compliance certificate came through and confirmed the true amount owing, if any.
4. Filed the compliance certificate application immediately. We coordinated with Cherise's accountant to submit the application to the CRA the same week the residency issue was confirmed, along with supporting documentation of her original cost in the shares, so the clock on processing started as early as possible rather than after closing.
5. Built the escrow release terms into the closing documents. The escrow agreement specified exactly how funds would be released once the certificate arrived — either fully, if the certificate confirmed no further withholding was required, or net of whatever amount the CRA determined was owing. This kept the buyer, the escrow agent, and Cherise all working from the same defined trigger rather than leaving the release open to later disagreement.

The outcome

The sale closed on the original date. Andre and Alejandro received their full proceeds at closing. Roughly a quarter of Cherise's share of the purchase price, a seven-figure sum, went into escrow rather than into her account. It stayed there for about five months while the CRA processed the compliance certificate application. When the certificate was issued, it confirmed a modest tax liability tied to the gain on her shares — well below the full amount that had been held back — and the balance was released to her, along with the portion that had never been in dispute.

The deal itself was not damaged: the buyer got the business on schedule, and none of the siblings had to accept a lower price or a delayed closing to solve the problem. But the cost to Cherise was real. She went five months without access to a meaningful sum of money that was rightfully hers, at a point when she and her siblings had every reason to expect a clean payout. She also incurred additional accounting fees to prepare and support the certificate application under time pressure, costs her brothers did not share. It was a contained loss rather than a defeat — the deal held together and she ultimately kept what she was owed — but it was an avoidable one. Had the residency question been raised when the sale was first being negotiated, months earlier, there would have been time to obtain the certificate before closing and none of her proceeds would have needed to sit in escrow at all. Andre and Alejandro, whose portions closed cleanly, never had to think about the issue again once the escrow was set up — a reminder that in a multi-shareholder sale, one seller's tax exposure is not automatically everyone's problem, provided the deal documents keep the pieces separate from the start.

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