Asset Sale vs Share Sale in Canada: Which Is Better When You Sell?

Asset Sale vs Share Sale: The Short Answer for Sellers and Buyers

You have an offer for your business. Then the buyer’s lawyer says they want to buy the assets, not the shares, and your accountant goes quiet. That one word changes your after tax proceeds by a lot, sometimes by hundreds of thousands of dollars. Sellers almost always prefer a share sale, because the gain is a capital gain, only half is taxable, and qualifying shares can shelter up to $1,275,000 with the lifetime capital gains exemption.

What Actually Transfers in Each Deal Structure

That fourth row is where deals stall in real life. If your value sits in a handful of customer contracts, a municipal licence or a favourable lease, an asset sale means asking third parties for permission, and some of them will use that moment to renegotiate.  

Tax Consequences for the Seller: LCGE, Recapture and Goodwill

In a share sale, you have a capital gain equal to proceeds less the adjusted cost base of your shares. Half is taxable. If the shares are qualified small business corporation shares, the lifetime capital gains exemption can eliminate tax on the first $1,275,000 of gain per person, and family members holding shares can each have their own. To qualify, the shares generally must meet three tests: they were owned by you or a related person for the 24 months before the sale, throughout that period more than 50% of the company’s assets were used in an active business in Canada, and at the moment of sale at least 90% are. Companies carrying large cash balances or investment portfolios fail this constantly, which is why purification is planned well before a sale, and why the investments usually end up in a holding company instead. In an asset sale, the corporation sells and is taxed first:

• Depreciable assets above their undepreciated cost trigger recapture, taxed as ordinary income at full corporate rates
• Goodwill falls into Class 14.1 and produces a gain that is half taxable, with the non taxable half feeding your capital dividend account
• Inventory is fully taxable income
• Then you still have to get the money out of the corporation, usually as a dividend, which is the second layer of tax

The exemption is not available on an asset sale, because the exemption applies to shares.  

Tax Consequences for the Buyer: Cost Base, CCA and Inherited Liabilities

The buyer’s calculus is the mirror image. In an asset sale they get a tax cost equal to what they paid, so they depreciate equipment and amortise goodwill against future income. That is real cash value, spread over years. They also leave behind the corporation’s tax history, unknown lawsuits, employment claims and payroll or GST exposure. In a share sale the assets keep their existing, usually much lower, tax cost inside the company.

The buyer gets no step up and inherits everything, which is why share deals come with longer due diligence, deeper representations and warranties, and often a holdback or escrow. Our financial due diligence checklist for buying a business shows what that review actually opens, and buyers at this stage usually want to know which level of financial statement the seller has been producing.  

Why Buyers Usually Want Assets and Sellers Usually Want Shares

Understanding the other side’s motive is what lets you trade. A buyer worried about hidden liabilities may accept a share sale if you give stronger indemnities and a reasonable escrow. A buyer who mainly wants depreciation may accept a share sale if you shave the price.  

Hybrid Sales: How Real Deals Bridge the Gap

Plenty of Canadian deals land in the middle. A hybrid sale typically has the corporation sell some assets, often the depreciable ones the buyer most wants to write off, while the shareholder sells shares of the remaining company so the exemption is still used. These structures work but they are technical. They interact with the anti avoidance rules, they require careful sequencing, and they only make sense above a certain deal size because of the professional fees. They also need to be planned before the letter of intent is signed, not after. Where assets have to be moved between entities first, that step is usually a section 85 rollover.  

Non Tax Factors in BC: Contracts, Licences, Employees and Leases

Tax drives the structure, but these decide whether it can actually close:

• Commercial leases almost always require landlord consent to assign, and many landlords use it as leverage.
• Employees. In an asset sale employment technically ends and the buyer offers new terms, so severance exposure and continuity of service have to be addressed in the agreement. Our guide to handling employee termination payroll in Canada covers what that costs.
• Licences and permits. Liquor, transport, professional and some municipal licences do not simply transfer.
• Customer contracts often contain anti assignment or change of control clauses. Read them before you choose a structure.
• Environmental and property issues on owned real estate can favour one structure heavily.

Where there is more than one shareholder, the drag along, tag along and valuation clauses in a shareholder agreement in BC can decide the structure before you get to negotiate it at all.  

Purchase Price Allocation and How It Changes Your Tax Bill

In an asset sale, the agreement allocates the price across each class of asset, and that allocation determines who pays what. Sellers generally want more allocated to goodwill, which is half taxable. Buyers generally want more allocated to equipment and inventory, which they deduct faster. Two things to know. The allocation must be reasonable and reflect fair value, because CRA can challenge one that clearly serves only tax, and a defensible business valuation is what makes it reasonable. And both parties should file consistently, since inconsistent allocations invite reassessment on both sides.

Because the allocation is negotiated, it is worth modelling. Moving a few hundred thousand dollars between goodwill and equipment can change your tax by a meaningful amount, and it is easy to concede at the drafting stage without realising what it costs. If you are early in a sale process, this is exactly the point where advice pays for itself. Maxpro Financials runs pre sale tax reviews for BC business owners, modelling both structures side by side on your actual numbers so you know what an asset offer needs to be worth before you respond to it.  

FAQ: Asset Sale vs Share Sale in Canada

Which structure gives me more money after tax?

Usually a share sale, because of the capital gains exemption and the single layer of tax. The gap narrows if you do not qualify for the exemption or your shares have a high cost base.  

How much is the lifetime capital gains exemption in 2026?

$1,275,000 for qualified small business corporation shares. It was set at $1.25 million in 2024 and indexation resumed in 2026.  

Did the capital gains inclusion rate change?

The proposed increase to two thirds was cancelled in March 2025. The inclusion rate remains one half.  

Can my spouse and children use their own exemption?

Yes, if they genuinely own qualifying shares and the arrangement holds up under the tax on split income rules. This has to be set up well in advance, not at closing.  

What is purification and when do I do it?

Removing excess cash, investments or non active assets so the company meets the 50% and 90% asset tests. Ideally start at least two years before a sale because of the 24 month holding test.

Is goodwill taxed the same in both structures?

No. In an asset sale goodwill is sold by the corporation and is half taxable there, with the other half creating capital dividend account room. In a share sale goodwill is simply part of the share price.

Can I be forced into an asset sale?

Nothing forces you, but if the buyer will only do assets and no other buyer is at the table, it becomes a price question rather than a structure question.  

What happens to my corporation after an asset sale?

You keep it, holding the sale proceeds. It is often used as an investment holding company, which brings passive income and RDTOH planning into play.  

How long before a sale should I involve my accountant?

Two to three years is ideal because of the holding period and asset tests. Twelve months is workable. After the letter of intent, most of the useful planning is already gone.  

Planning an Exit? Start With a Pre Sale Tax Review