On most owner-operated sales, the tax difference between selling shares and selling assets is the single biggest number in the deal. It falls on the seller in a share sale and on the buyer in an asset sale. Whichever way it falls, price it before anyone signs anything.
Our charges include applicable taxes. Disbursements are extra and billed at cost — itemized upfront, in writing, never hidden.
From $3,388.87 taxes included
Selling shares produces a capital gain, and only half of a capital gain is taxable. The federal proposal to raise the inclusion rate to two-thirds was deferred and then cancelled in March 2025, so the one-half rate stands. On top of that, where the shares are qualified small business corporation shares, the seller can shelter a large slice of the gain with the lifetime capital gains exemption under the Income Tax Act — an exemption that is indexed annually and now sits above $1.25 million per person.
Qualification is tested, not assumed. Broadly, the company has to be a Canadian-controlled private corporation; at the time of sale substantially all of the fair market value of its assets — generally 90 percent or more — must be used principally in an active business carried on primarily in Canada; more than half must have been so used throughout the preceding 24 months; and the shares must have been held by you or a related person over that period. Surplus cash, an investment portfolio or a building the business does not use will break the test.
That 24-month look-back is the reason to start early. Cleaning redundant assets out of the company — purification — takes planning and time, and cannot be done the month before closing. The same is true of arrangements that let a spouse or adult children each claim their own exemption: they have to be in place well in advance and they have their own anti-avoidance rules. Claiming a large exemption can also trigger the alternative minimum tax in the year of sale, which is recoverable in later years but has to be funded now.
A buyer of assets gets a fresh cost base in what it buys, and therefore future deductions. Equipment and vehicles are depreciated at their class rates. Goodwill goes into a capital-cost class that is written off slowly on a declining-balance basis. A buyer of shares inherits the corporation's existing, usually much lower, tax cost and gets no step-up at all. That gap is real money and it is what the price negotiation is genuinely about.
In an asset deal, price allocation is a negotiation in itself, because buyer and seller want it pulled in opposite directions. The buyer wants more to inventory and equipment, which convert into deductions quickly. The seller resists loading equipment, because proceeds above the undepreciated balance come back as recapture taxed as ordinary income rather than as a capital gain. Amounts allocated to accounts receivable and to a restrictive covenant have their own elections and rules under the Income Tax Act. Both sides must file consistently with what they agreed.
The seller's other asset-sale problem is the second layer of tax. The corporation pays tax on the sale, and the shareholder pays again to get the money out. The one relief is the capital dividend account: the non-taxable half of the corporation's capital gain, including its gain on goodwill, can generally be paid out to Canadian-resident shareholders as a tax-free capital dividend, if the election is filed correctly and on time. Ask your accountant to model the full after-tax result to the shareholder, not the corporation.
HST splits cleanly. Shares are a financial instrument and their sale is exempt. An asset sale is a taxable supply of each asset, though the Excise Tax Act lets buyer and seller jointly elect out of the tax where the buyer is acquiring substantially all of the property needed to carry on the business. The election has eligibility conditions and a filing deadline, so put it on the closing agenda rather than leaving it to whoever prepares the next return.
Real property moves the numbers. If the deal includes land or a building, an asset purchase transfers title and attracts land transfer tax under Ontario's Land Transfer Tax Act, plus Toronto's municipal land transfer tax where the property sits in the City of Toronto. A share purchase does not, because the registered owner never changes. On a deal where the building is most of the value, that point alone can decide the structure. Ontario repealed its bulk sales legislation, so there is no bulk sales clearance step on an asset sale.
Two traps catch people. If the seller is a non-resident of Canada, the buyer has to withhold and remit a portion of the price on a sale of taxable Canadian property unless a clearance certificate is delivered — get that process started early, because the certificate takes time. And unremitted source deductions and HST can follow the assets or a non-arm's-length transfer, which is why CRA and WSIB clearances plus a holdback from the closing funds are standard buyer protection in an asset deal.
It depends entirely on your numbers, so do not accept a rule of thumb. The variables are whether your shares qualify for the lifetime capital gains exemption, how much of it you have already used, how much recapture an asset sale would trigger on your equipment, how much of the corporate proceeds can come out as a tax-free capital dividend, and your own marginal rate. On a typical owner-operated sale the difference is large enough to justify a few hours of accounting work before you agree the structure.
Purification means moving assets the business does not actively use — surplus cash, investments, a building leased out, a life insurance policy — out of the operating company so it meets the asset tests for the capital gains exemption. Techniques include paying dividends up to a holding company, repaying shareholder loans and reorganizing the corporate structure. Because one of the tests looks back 24 months, meaningful purification is a plan measured in years, not weeks. Start it when you first think about selling.
Sometimes, and only if the structure was set up in advance — typically through a family trust or a properly implemented estate freeze holding shares before the sale. It is not something that can be arranged once a buyer is at the table, and the tax on split income rules restrict who can benefit. It also has non-tax consequences, including giving other people an interest in your company. Get combined legal and tax advice, well ahead of any sale process.
Yes, and that is the normal answer. Have your accountant calculate the after-tax difference between the two structures and negotiate a price adjustment that closes the gap, or ask the buyer to share it. Buyers are usually willing, because the step-up they receive is worth real money to them and the analysis makes that visible. If price will not move, look at what else can — the allocation, a longer vendor take-back, or the seller keeping the real estate and leasing it to the buyer.
Yes, and they should be talking to each other before the structure is set. The accountant models the tax; the lawyer builds the structure that delivers it and allocates the risk in the agreement — reps, indemnities, holdbacks, elections and closing deliverables. Our published flat fee for mergers and acquisitions work starts at $3,388.87 with taxes included, with disbursements extra at cost and itemized in writing. Larger transactions are quoted in writing after a short call.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.