When it’s time to sell your business, one of the most critical decisions is how to structure the sale. In Canada, you typically have two options: sell shares of the corporation or sell the assets held by the business. Each path comes with distinct legal and tax consequences — especially when you factor in the Lifetime Capital Gains Exemption (LCGE).
Here’s what every business owner should know before closing the deal.
Share Sale vs. Asset Sale: What’s the Difference?
- Share Sale: The buyer acquires shares of the corporation, assuming full ownership — including assets, liabilities, and tax obligations.
- Asset Sale: The buyer purchases selected assets (e.g., equipment, goodwill, inventory) from the corporation. Ownership of the corporation itself doesn’t change.
While sellers generally prefer share sales for tax reasons, many buyers push for asset sales to reduce risk and improve post-acquisition tax treatment.
What Happens When You Sell Assets in a Corporation?
When a corporation sells its assets instead of shares, the sale is taxed at the corporate level first. The proceeds from the sale (minus the cost base of the assets) are considered capital gains or business income, depending on the asset.
If the owner then wants to extract the sale proceeds from the corporation personally — through dividends or salary — a second layer of taxation applies. This is often referred to as double taxation.
Example:
- Your corporation sells assets and earns a $500,000 profit.
- The corporation pays corporate income tax on that amount.
- You withdraw the funds as a shareholder dividend and pay personal income tax on that withdrawal.
This structure can lead to an overall higher tax bill, compared to a well-planned share sale that qualifies for the LCGE.
That said, asset sales can still be advantageous when:
- The business has non-active assets that wouldn’t qualify for the LCGE.
- The buyer is unwilling to accept corporate liabilities.
- You’re planning to wind down the corporation and distribute funds over time.
Lifetime Capital Gains Exemption (LCGE): The Share Sale Advantage
If you’re selling shares of a Qualified Small Business Corporation (QSBC), you may be eligible to claim the LCGE, which allows up to $1,016,836 (2025 indexed amount) of capital gains to be received tax-free.
To qualify:
- The company must be a Canadian-Controlled Private Corporation (CCPC).
- 90% or more of the assets must be used in active business in Canada.
- You must have owned the shares for at least 24 months.
This exemption only applies to share sales, not asset sales.
Tax Planning is Critical
A poorly structured sale can cost you tens (or hundreds) of thousands in unnecessary tax. Whether you’re negotiating a share sale or selling individual assets, you should always consult a tax professional who understands corporate exit strategies.
Working with a local tax accountant near me can help you weigh the options and make an informed choice that fits both your business goals and your personal financial future.
If you’re selling an incorporated business, consult a tax accountant Langley who knows how to navigate the LCGE, asset allocation, and withdrawal strategies that could reduce your tax burden.
And if your business holds a mix of active and passive assets, an experienced accountant Langley can help determine whether a hybrid sale or asset-only strategy is best — and how to avoid costly CRA surprises down the road.
Final Thoughts
Selling a business is a major event — one that requires just as much tax planning as operational planning. Whether you’re selling shares or assets, make sure your exit strategy is structured in a way that keeps more money in your pocket.
