When it comes to buying or selling a business in Canada, one decision can shape everything
that follows: should the deal be structured as an asset sale or a share sale?
That’s the question LumiQ host Meredith Mednick, CPA posed to Melisa Gaetani, CPA, CA,
PhD, CHRL, of TG&C Chartered Professional Accountants, in a recent episode. Together, they unpacked
how this choice impacts tax outcomes, liabilities, and planning strategies and why the smartest
M&A tax planning starts years before the transaction closes.
“M&A can feel like the Wild West,” Melisa laughed. “There’s no one right answer, it
depends on your goals, your structure, and your timing.”
So what should Canadian business owners keep in mind when considering an asset sale vs.
share sale? Let’s walk through the highlights.
What’s Really the Difference Between an Asset Sale and a Share Sale?
As Meredith kicked off, she noted that while most owners have heard these terms, few know
what they mean.
“Think of an asset sale,” Melisa explained, “as buying specific parts of the business; equipment,
inventory, property, or even the brand itself. A share sale, on the other hand, means buying the
whole company; assets, liabilities, and all.”
In other words, in an asset sale the buyer gets to “cherry-pick” what they want; in a share sale,
they take everything inside the box, including any skeletons hiding in the closet.
That difference sets the stage for two very different tax outcomes in Canadian M&A
transactions.
Asset Sales: Clean Slate for Buyers, More Complexity for Sellers
Meredith asked what makes asset sales so appealing to buyers.
“Flexibility,” Melisa said. “Buyers can choose which assets to take, and sometimes leave behind
risky liabilities.”
Still, it’s rarely that simple. Some assets come with baggage, like equipment tied to a loan or
property with a mortgage. “It’s a fallacy to think you’re buying just assets,” Melisa warned.
“Sometimes the liabilities follow too.”
From a tax angle, sellers pay capital gains tax on appreciated assets and may face recapture —
repaying previously claimed depreciation – if the sale price exceeds book value. Goodwill, that
intangible value tied to a company’s reputation or relationships, adds another twist.
“Goodwill is an intangible capital asset,” Melisa noted. “It’s taxed as a capital gain for the seller, but the
buyer gets to write it off over 20 years.”
That double-tax effect makes asset deals less appealing for sellers, even though buyers love
the fresh cost bases they can later depreciate.
Share Sales: The Seller’s Advantage
When Meredith turned the conversation to share sales, Melisa smiled.
“Here’s where the seller finally wins,” she said.
In a share sale, the buyer purchases the company itself, taking over all its contracts, employees,
tax accounts, and sometimes its headaches. Operationally, it’s simple. The business runs on
the same systems, bank accounts, and client relationships.
But the biggest win for sellers comes from Canada’s Lifetime Capital Gains Exemption (LCGE).
“If you qualify, you can sell up to about a million and a quarter dollars of gain tax-free,” Melisa
explained. “And with a family trust, you can multiply that. A couple with two kids could shelter
around five million dollars in gains.”
That can mean the difference between writing a seven-figure cheque to the CRA or keeping it in
your pocket.
Of course, Meredith asked the question every business owner should ask: What does “qualify”
actually mean?
Melisa breaks it down:
- The company must be a Canadian-controlled private corporation (CCPC).
- At least 90 percent of its assets must be used in an active business at the time of sale.
- For 24 months before the sale, at least half of its assets must have been used in active
operations. - And shares generally must be owned by individuals or qualifying trusts, not another
corporation.
“These tests take time,” Melisa emphasized. “If you wait until you have an offer on the table, it’s
usually too late.”
Why Buyers and Sellers See the World Differently
At this point, Meredith observed something every dealmaker eventually learns: buyers and
sellers rarely want the same thing.
“Exactly,” Melisa replied. “Buyers want assets, they want to start clean. Sellers want shares,
they get better tax treatment. The fun part is negotiating the middle ground.”
For buyers, share purchases are convenient. Existing accounts, systems, and a tax pool come
with the company. But it’s also risky: any historical non-compliance with HST, payroll, or income
tax follows the corporation.
To protect themselves, buyers rely on:
- Indemnifications (the seller covers the old liabilities),
- Escrows or holdbacks (money set aside for surprises) and
- Reps and warranties spell out exactly what the seller guarantees.
“It’s all about balance,” Melisa said. “And good due diligence.”
How Due Diligence Changes Everything
When Meredith asked about due diligence, Melisa didn’t hesitate.
“It’s where the deal is made or broken,” she said. “Skip it, and you’re flying blind.”
She shared a story of a buyer who originally agreed to a share purchase for a grocery business,
until the due-diligence team uncovered a lease clause banning hot-food prep (which made up
40 percent of sales) and a $50,000 pending lawsuit.
“That one clause completely changed the structure,” Melisa recalled. “They switched to an asset
sale overnight.”
In another case, key employees bought out their employer and insisted on an asset deal, until
TG&C discovered significant refundable tax and SR&ED credits sitting in the company. Keeping
the corporate shell meant those benefits stayed intact.
“That discovery saved them millions,” Melisa said. “Without due diligence, they would’ve left it all
on the table.”
The Power of Early Planning
As the discussion turned to planning, Meredith asked how early owners should start preparing if
they think they’ll sell.
“Two to three years minimum,” Melisa replied. “Ideally earlier.”
She recounted a client story: two founders in the energy sector who weren’t planning to sell
anytime soon. Still, TG&C helped them reorganize, introducing holding companies and a family
trust. Four years later, they sold. Thanks to that structure, they each accessed $5 million in tax-
free gains under the LCGE.
“Without that prep, they would’ve paid over three million each in taxes,” Melisa said. “Planning
changed their lives.”
Why the Right Advisors Matter
Both Meredith and Melisa agreed that no one should navigate M&A alone.
“Anything goes, ask for it,” Melisa said. “But make sure your advisors are advocating for you the
entire time.”
From accountants and lawyers to valuation and tax specialists, the right team helps structure
deals that protect value, manage risk, and align with long-term goals.
“Too often,” Melisa added, “buyers and sellers want to stay friendly and avoid tough
conversations. That’s when mistakes happen. Your advisors are there to be the bad cops so
you don’t have to.”
Structure With Intention
Every merger or acquisition is unique, but one truth stands out: structure drives outcomes.
The right planning can mean the difference between a smooth, tax-efficient transition and an
unexpected liability. Whether it’s deciding between an asset sale or a share sale, preparing your
business to qualify for the Lifetime Capital Gains Exemption, or simply understanding what “due
diligence” really requires—the earlier you plan, the better positioned you’ll be.
That’s where the team at TG&C Chartered Professional Accountants comes in.
At TG&C, we don’t just step in at the end of a transaction, we partner with clients from day one
to:
- Evaluate deal structures and model tax impacts before committing.
- Prepare and purify all corporations to qualify for key exemptions like the LCGE.
- Guide buyers and sellers through due diligence, purchase price allocation, and tax
compliance. - Collaborate with legal teams to ensure agreements reflect your best interests.
“Our goal,” says Melisa, “is to make sure clients never leave value on the table. Whether they’re
buying, selling, or preparing for the future, we help them navigate every stage with confidence.”
With decades of combined experience in tax, accounting, and advisory services, TG&C helps
entrepreneurs protect their wealth and position their businesses for what’s next.
Smart tax planning doesn’t just happen at closing—it starts years before.
About TG&C Chartered Professional Accountants
At TG&C, we assist entrepreneurs and business owners grow strategically, from incorporation
and expansion to mergers, acquisitions, and succession. Our team combines deep technical tax
expertise with real-world business experience to deliver practical, actionable advice that helps
you make confident decisions. Whether you’re preparing to sell, buying a business, or simply
planning ahead, our advisors can help you structure your next move the right way — for today
and for the future. To learn more contact our team to start a conversation today!