Tax planning before you sell

General information, not tax or legal advice. I’m not an accountant or a lawyer. Rules change, so check the numbers with yours before you act.

What a sale can trigger

• Capital gains: half of the gain is taxable.
• Recapture of capital cost allowance you claimed on the building, taxed as income.
• GST on most commercial property, usually self-assessed by a registered buyer.
• Property Transfer Tax for the buyer when title changes.

The lifetime capital gains exemption

For 2026 the exemption is $1,275,000. It applies to qualified small business corporation shares and qualified farm or fishing property, not to real estate you own directly. The main tests, according to CRA:

• The company is a Canadian-controlled private corporation.
• At the time of sale, 90% or more of its assets are used in an active business in Canada.
• For the 24 months before, more than 50% were.
• You or a related person held the shares for 24 months.

A company that mainly holds rental property generally doesn’t qualify. Cleaning up a company to pass the tests can take time, which is why planning early matters.

Share sale or asset sale: what’s the difference?

In a share sale, the buyer buys the shares of your company. The company itself doesn’t change, so it keeps its assets, contracts, leases, liabilities and history. The buyer takes over all of it, including anything that turns up later.

In an asset sale, the buyer picks what they want from the company, usually the equipment, inventory, goodwill and an assignment of the lease. Your company keeps everything else, including its debts and its history. You then wind up the company or keep it going.

Why sellers usually want a share sale

• The lifetime capital gains exemption. For 2026 it’s $1,275,000 per person, and it only applies to shares of a qualified small business corporation. In an asset sale, the company sells the assets, so the exemption doesn’t apply to that sale.
• A cleaner exit. The company goes with the buyer, so you aren’t left with a shell company holding old liabilities to wind up.

Why buyers usually want an asset sale

• No surprises from the past. The buyer takes the assets they chose and leaves old debts, tax issues and claims with your company.
• A higher cost base. The buyer’s cost is what they paid for each asset, so they can claim capital cost allowance on that higher amount. In a share sale, the company keeps its old, lower tax values.

Sales tax, the lease and other details

• GST: an asset sale can attract GST. If the buyer gets substantially all (generally 90% or more) of what’s needed to run the business, you can usually file a joint section 167 election (form GST44) so no GST is payable. If youBoth of you have to be GST registrants, unless you aren’t registered.rsquo;re a GST registrant, the buyer has to be one too.
• PST: in BC, PST applies to taxable assets such as equipment, furniture and software. It doesn’t apply to goodwill or to inventory bought for resale. Shares aren’t subject to PST.
• The lease: in an asset sale, the lease has to be assigned to the buyer, and that usually needs the landlord’s consent. In a share sale, the tenant stays the same, but many leases treat a change of control as an assignment, so check the lease either way.
• Meeting in the middle: a price adjustment, a mix of shares and assets, or a vendor take-back can bridge the gap. Your advisers will know which options make sense for you.

Talk to your accountant and lawyer early, before you agree to a structure.

Questions people ask

What is the lifetime capital gains exemption for 2026?

$1,275,000 for qualified small business corporation shares and qualified farm or fishing property. It’s indexed to inflation.

Does the exemption apply if I sell my building?

Not if you own the building directly. It can apply to shares of a qualifying active business, so structure matters.

Should I sell shares or assets?

It depends on tax, liabilities and what the buyer will accept. Ask your accountant before you list.