How is a business sale taxed in Canada?
Selling a business usually triggers a capital gain — the difference between the sale price and your adjusted cost base, minus selling expenses. In Canada, 50% of a capital gain is included in taxable income and taxed at your marginal rate. Selling shares of a qualifying corporation may also let you claim the Lifetime Capital Gains Exemption.
What is the Lifetime Capital Gains Exemption?
The Lifetime Capital Gains Exemption (LCGE) lets an individual shelter capital gains on the sale of qualified small business corporation (QSBC) shares — about $1.25 million in 2024. To qualify, the company must meet active-business, asset and holding-period tests. The exemption applies to share sales, not to selling business assets directly.
Is it better to sell shares or assets?
It depends who you ask. Sellers usually prefer a share sale because it can access the Lifetime Capital Gains Exemption and produces a single layer of capital-gains tax. Buyers often prefer an asset sale for a stepped-up cost base and to avoid inheriting liabilities. The structure materially changes the after-tax result for both sides.
What is the capital gains inclusion rate?
The inclusion rate is the portion of a capital gain that is added to taxable income. In Canada it has generally been 50%, meaning only half the gain is taxed. Proposed changes to increase the rate on large gains have been the subject of significant uncertainty, so confirm the current rate with a tax professional before selling.