Compare asset and share transaction consequences, acquisition of control effects, and sale-planning risks.
Corporate sale planning compares what the seller wants, what the buyer wants, and what the tax rules permit. The same business sale can be structured as a share sale, asset sale, rollover, redemption, earnout, or internal cleanup before sale. Each alternative changes taxable income, capital gains, tax attributes, GST/HST, legal risk, and cash flow.
In CPA Canada Taxation cases, sale planning should not start with a preferred answer. First identify the seller, buyer, assets, shares, liabilities, tax cost, fair value, and whether control changes. Then compare the alternatives.
Sale-planning questions usually include a private corporation, a possible buyer, assets with built-in gains, unused losses, passive assets, shareholder retirement needs, or buyer due diligence concerns.
| Sale fact | Why it matters |
|---|---|
| Buyer wants assets | Buyer may want selected assets and tax cost step-up, but seller may face corporate tax. |
| Seller wants shares | Seller may prefer capital-gain treatment and possible qualified-share planning. |
| Corporation has unused losses | Acquisition of control may restrict future use. |
| Passive assets remain in the corporation | Sale readiness and qualified-share planning may be affected. |
| Related-party sale is proposed | Valuation, commercial terms, and anti-avoidance risk increase. |
| Earnout or vendor financing is proposed | Timing, collectability, and valuation need analysis. |
| Asset transfer before sale is proposed | Section 85 or other reorganisation support may be needed. |
Compare both sides. The seller and buyer often prefer different structures.
| Issue | Share sale | Asset sale |
|---|---|---|
| Seller result | Shareholder disposes of shares; capital-gain planning may matter. | Corporation sells assets and may realise income, recapture, and capital gains. |
| Buyer result | Buyer acquires corporation with history, liabilities, and tax attributes. | Buyer acquires selected assets and may prefer tax cost allocation. |
| Liability transfer | Buyer inherits corporate history unless indemnities protect it. | Buyer can often leave some liabilities behind. |
| GST/HST | Share transfers are generally different from asset transfers; review specific facts. | Asset sales may raise GST/HST and election questions. |
| Due diligence | Buyer reviews corporate records, tax filings, payroll, GST/HST, and disputes. | Buyer focuses on asset title, values, contracts, and assumed liabilities. |
| Planning risk | Qualified-share, exemption, and acquisition-of-control analysis may matter. | Recapture, inventory, allocation, and creditor issues may matter. |
The recommendation should explain whose objective is being prioritised and whether the transaction price should change to reflect tax differences.
When control changes, tax attributes can change. CRA’s T2 guidance notes that special rules apply after an acquisition of control for calculating and deducting losses. Older CRA interpretation material also discusses deemed year-end and loss restriction concepts, but because it is archived, use current legislation and professional support for live advice.
| Acquisition-of-control issue | Planning implication |
|---|---|
| Deemed year-end | Filing, payment, and loss timing need attention. |
| Non-capital losses | Carryforward use may be restricted after control changes. |
| Net capital losses | Pre-acquisition net capital losses may be lost or restricted. |
| SR&ED or investment tax credits | Credit use can be restricted after control changes. |
| Asset values | Built-in gains or losses may need review before closing. |
| Purchase agreement | Representations and indemnities should address tax history. |
Do not treat unused losses as freely transferable value in a sale without acquisition-of-control analysis.
A corporation should be cleaned up before going to market.
| Readiness area | What to review |
|---|---|
| Share records | Share register, classes, paid-up capital, adjusted cost base, and ownership history. |
| Asset mix | Active business assets, passive assets, redundant assets, and shareholder-use property. |
| Tax filings | T2, GST/HST, payroll, dividends, shareholder benefits, and objections. |
| Losses and credits | Availability, restrictions, support, and buyer usefulness. |
| Valuation | Fair market value of shares, assets, goodwill, and debt. |
| Contracts and liabilities | Change-of-control clauses, debt covenants, leases, and contingent claims. |
Sale readiness is not only a tax task. It affects price, buyer confidence, warranties, and closing risk.
Use this structure for sale-planning cases:
| Pitfall | Correction |
|---|---|
| Choosing share sale or asset sale from only one party’s view. | Explain buyer and seller consequences. |
| Treating losses as sale value without restriction analysis. | Consider acquisition-of-control and continuity rules. |
| Assuming shares qualify for favourable capital-gain treatment. | Check ownership history, active-business assets, and records. |
| Ignoring GST/HST in asset sales. | Review indirect-tax treatment and possible elections. |
| Forgetting due diligence. | Tie the recommendation to records, warranties, and tax history. |
For current public context, review CRA’s qualified small business corporation shares, T2 loss continuity guidance, and corporation income tax hub.