Once the realtor’s APS is signed, we triage and control the timeline: open the file, calendar every condition and closing date, confirm the deal type (share vs. asset) and whether the APS needs a short amendment to match that structure, and map required third-party consents (landlord, lender, franchisor, key customer) plus any regulatory approvals. We also verify parties (corporate status, authority, non-resident issues), deposits/escrows, and “time is of the essence” mechanics so notices and waivers are sent properly.

Next, we run targeted diligence and paper the deal. For share deals, we focus on inherited liabilities (tax, payroll, HST, contracts, IP, HR, litigation), tighten reps/indemnities, and plan for acquisition-of-control tax effects (deemed year-end, loss streaming). For asset deals, we verify title to each asset, list assumed liabilities precisely, and prepare assignments/consents (leases, contracts, IP). We settle price allocation (inventory/AR/equipment/goodwill/real property) and line up elections: s.22 (AR), s.85 (rollover if shares are consideration), GST/HST s.167 (going concern), restrictive-covenant s.56.4, and s.116 clearance for non-resident vendors. If needed, we add holdbacks/escrows, earn-outs, and working-capital adjustments.

Finally, we run the closing and clean-up. We circulate a closing agenda and funds-flow, collect payoff letters, and register or discharge PPSA/mortgages. On share closings, we deliver share transfers, update registers, and file officer/director changes; on asset closings, we deliver bill of sale, assignments/novations, employee offer letters, landlord/lender consents, and IP assignments. Post-closing, we file tax elections on time, update CRA program accounts (GST/HST, payroll), record security releases and new security, update the minute book, record land/IP transfers, notify stakeholders, and diary escrow/earn-out milestones.

Share Sale (purchase of the company’s shares)

• What the buyer gets: The corporation “as is,” including all assets, liabilities (disclosed and undisclosed), contracts, permits, employees, tax attributes, and history.

• Why sellers like it: Often simpler to paper, enables capital-gains treatment for individual vendors, and may allow use of the lifetime capital gains exemption (LCGE) if QSBC criteria are met.

• Why buyers hesitate: Inherit historic risks; no step-up in tax cost of underlying assets (unless a bump is planned after acquisition of control).

Asset Sale (purchase of selected assets and assumed liabilities)

• What the buyer gets: Only specified assets (e.g., inventory, equipment, contracts) and selected liabilities; clean break from the corporation’s historic risks.

• Why buyers like it: Tax cost “step-up” on acquired assets (better future deductions), and targeted assumption of liabilities.

• Why sellers hesitate: Corporation pays tax on gains/recapture, and a second layer of tax may arise when proceeds are distributed to shareholders.

A. Tax Character of Your Gain

• Individual vendors generally realize capital gains on a share sale (favourable inclusion rate).

• Special rules can recharacterize gains as income in limited cases (e.g., securities dealers, “adventure in the nature of trade”).

B. LCGE on Qualified Small Business Corporation (QSBC) Shares

• If the shares qualify as QSBC shares, individuals may claim the LCGE to shelter capital gains (subject to lifetime limits and clawbacks).

• Core QSBC tests (simplified):

  • At sale: The company is a CCPC and ≥90% of asset FMV is in active business assets in Canada (or shares/notes of connected SBCs).

  • For the 24 months before sale:

    • Share ownership is limited to the seller and related persons/partnerships.

    • The company is a CCPC and >50% of asset FMV is in qualifying active business assets (including look-through to connected corps).

• Purification: If passive assets or excess cash taint the tests, pre-sale planning can help (e.g., pay dividends—including capital dividends if available, repay debt, acquire active assets, or reorganize to move passive assets out), while managing tax and business risks.

C. Other Vendor Tools

Capital dividends: If the company has a capital dividend account (CDA) balance (e.g., 50% non-taxable portion of prior capital gains), consider paying a pre-closing capital dividend to residents of Canada before any acquisition-of-control rules reduce CDA.

Safe-income dividends: Within corporate groups, dividends sourced from “safe income on hand” can reduce share value (and future capital gain) without triggering anti-avoidance under s.55(2)—but the calculation is technical and timing-sensitive.

Capital gains deferral (replacement shares): In limited cases, individuals can defer gains on a sale of certain eligible small business corporation shares by reinvesting in replacement shares (strict definitions and timelines apply).

Vendor consulting/non-compete: Payments for genuine post-sale services are typically income to the vendor and deductible to the company; restrictive covenant (non-compete/non-solicit) payments generally taxable under s.56.4, with elections that can change characterization (and purchaser symmetry).

A. Diligence (Tax & Legal)

• Tax returns/assessments, waivers, pending audits, loss pools, CCA classes, CEC balances, CRA rulings/interpretations.

• Contracts/exposures: Payroll/source deductions, GST/HST and provincial taxes, employee matters, environmental, litigation, debt covenants, leases, IP.

• Status checks: CCPC/SBC/QSBC status, related/connected/associated entities and their attributes.

B. Stepping Up Asset Cost (Asset Purchases)

• Inventory: Income on buyer’s resale; seller recognizes income (s.23).

• Accounts receivable (AR): Use a joint s.22 election so the buyer picks up the AR into income and can claim doubtful/bad-debt deductions later; the seller deducts the discount portion as if it were a reserve/bad debt.

• Depreciable property: Allocate price by class; seller may face recapture or capital gains; buyer adds cost to CCA classes (half-year rule and short-year proration apply).

• Eligible capital property (ECP) (e.g., goodwill, customer lists, certain IP): Seller typically includes a portion of proceeds in business income; buyer adds 75% of cost to CEC and amortizes at prescribed rates (now replaced by the Class 14.1 regime—ask us how current rules apply).

C. Stepping Up Asset Cost (Share Purchases + Bump)

• If a Canadian corporate buyer acquires ≥90% (or 100%) and later winds up or vertically amalgamates, the buyer may “bump” the cost of certain non-depreciable capital property (e.g., shares/land) under s.88(1)/s.87(11)—subject to complex denial rules (“ineligible property” tests). This can facilitate post-closing divestitures.

D. Financing & Interest Deductibility

Interest on money borrowed to acquire shares may be deductible if tests in s.20(1)(c) are met. Post-closing amalgamation or wind-up can reinforce the linkage between borrowing and income production.