Share sale vs asset sale in Canada: which way to sell, and who pays the tax

What is actually being sold

A business can be sold two ways. In a share sale, the shareholder sells the shares of the corporation to the buyer. The corporation continues, with its assets, contracts, employees, tax accounts and history intact; only the owner changes. In an asset sale, the corporation sells its assets (equipment, inventory, goodwill, contracts, the customer list) to the buyer, and the shareholder is left owning a corporation that holds cash. The buyer’s own corporation or the buyer personally takes the assets into a new business.

The tax follows the seller. In a share sale the seller is the individual, with one personal gain. In an asset sale the seller is the corporation, and there is a second step before the money is personal.

The comparison table

The share sale and the lifetime capital gains exemption

The exemption is what makes a share sale worth so much more to the seller. The CRA’s figure is $1,250,000 of lifetime capital gains exemption for dispositions of qualifying property, which at a one-half inclusion rate is a maximum capital gains deduction of $625,000 of taxable gain. A seller with the full exemption available who sells qualifying shares for a $1,250,000 gain pays no federal tax on it (alternative minimum tax and the provincial rules aside). The same $1,250,000 earned as an asset sale would be taxed in the corporation and again on the way out.

“Qualifying” is the condition that does the work. The shares must be of a small business corporation at the sale date, meaning all or substantially all of its assets are used in an active business carried on primarily in Canada; for the 24 months before, more than 50% of the assets must have met that test; and the seller or a related person must have held the shares for those 24 months. Surplus cash, a rental property or an investment portfolio inside the operating company can fail the test, and “purifying” the corporation by moving those out takes time and has its own tax. The conditions and the planning are in the lifetime capital gains exemption guide, and a holding company is often the structure that keeps the operating company clean.

The asset sale and the two levels of tax

When the corporation sells its assets, each asset is taxed on its own terms. Goodwill and capital property produce capital gains, half taxable in the corporation. Equipment sold above its undepreciated capital cost produces recapture, fully taxable, as explained in terminal loss versus recapture. Inventory and receivables are income. The corporation pays tax on the total, and the after-tax cash sits in it. Getting that cash to the shareholder is a dividend, taxed personally, or a wind-up with the same effect. Some of the gain can come out tax-free through the capital dividend account (the untaxed half of capital gains), which softens the second level but does not remove it. Our guide to dissolving a corporation sets out the wind-up sequence that usually follows an asset sale.

The allocation of the purchase price across the assets is negotiated, and the two sides want opposite things: the buyer wants value on equipment and inventory (fast deductions) and the seller wants it on goodwill (capital treatment). The allocation goes into the agreement and binds both.

GST/HST on an asset sale: the GST44 election

An asset sale is a supply of each asset, and the taxable ones attract GST/HST, which the buyer pays and then claims back if registered, with the cash-flow cost in between. Section 167 of the Excise Tax Act lets the parties elect out of that. Under the CRA’s memorandum, the supplier must be selling a business or part of a business that it established or carried on; the recipient must acquire all or substantially all of the property that can reasonably be regarded as necessary to carry on the business; and both parties must be in the same registration position, either both registrants or neither. The election is made on Form GST44, and where the recipient is a registrant it must be filed on or before the day the recipient would have had to file a return for the first reporting period in which tax would otherwise have been payable. A late GST44 is a common and expensive miss; put it on the closing checklist.

Why the buyer wants assets

Three reasons. The buyer gets a cost base equal to what was paid, so CCA restarts on the new values and goodwill is deductible over time; in a share sale the corporation’s old, often fully depreciated, values carry on. The buyer leaves behind whatever the corporation did before: an unknown tax reassessment, a lawsuit, an unpaid remittance, all stay with the seller’s corporation. And the buyer takes only the assets and contracts it wants. A share purchase requires due diligence on the corporation’s whole history and an indemnity from the seller for what diligence misses. Buyers of a loss corporation also find that the non-capital losses are restricted after the change of control, a point covered in the non-capital loss guide, so the losses are rarely worth paying for. The buyer’s side of the decision is in the buying-a-business checklist.

How the gap gets bridged

Because the seller nets more from a share sale and the buyer nets more from an asset sale, the structure is part of the price. A seller who insists on shares may accept a lower headline price; a buyer who insists on assets usually pays more. The right comparison is the seller’s after-tax proceeds under each structure, set against the buyer’s after-tax cost, with the exemption, the recapture, the second level of tax and the GST/HST cash flow all in the model. A hybrid, where some assets are sold first and the shares after, is sometimes used to let the seller claim the exemption while the buyer gets a cost base on specific assets; it needs careful sequencing and is a lawyer-and-CPA exercise, not a form.

A short example

An owner has run an incorporated trades business for twelve years. The corporation’s assets have a tax cost near zero; a buyer offers $1,000,000. As a share sale, the owner’s gain is about $1,000,000 less the small original share cost; if the shares qualify and the owner has not used the exemption, it is within the $1,250,000 limit and the gain is sheltered. As an asset sale at the same price, the corporation reports recapture on the equipment and a capital gain on goodwill, pays tax, and the owner then pays personal tax on the dividend that brings the balance out. The owner keeps less, potentially by a large margin, and the buyer, who would get $1,000,000 of new cost base, offers more for assets than for shares. Which number is higher after tax is the question to answer before signing a letter of intent, with real provincial rates and the actual asset mix.

The bottom line

Shares give the seller one level of tax and the exemption; assets give the buyer a clean start and a fresh cost base. Confirm the shares qualify well before a sale, keep the operating company clean of passive assets, and if the deal is an asset sale, file the GST44 on time and negotiate the allocation. Price and structure are the same conversation.

Which structure leaves you more depends on the asset mix, the exemption and the buyer; ask about your own situation and a CPA replies free, usually the same business day. The wind-down steps after a sale are in closing or selling your corporation.

General information for Canadian business owners, current as of November 2026; not tax, legal or accounting advice, and no client relationship. Rules change, so speak with a CPA before acting.