Tax Implications When Selling a Business in Canada
Selling a business in Canada can change your finances in a big way. Taxes can affect your profit, and the Canada Revenue Agency (CRA) will be paying attention. They’ll look at the type of sale, where you live, and how much you earn. Together, these factors will shape your tax bill and influence how much money you keep, so knowing how they work is important. This article offers general guidance, not tax or legal advice — your situation may differ, so speak with a qualified Canadian tax professional before you sell.
How Tax Is Assessed When Selling a Canadian Business
When you sell a business, the profit is usually treated as a capital gain. This amount is added to your taxable income for the year. If the gain is large, it can move you into a higher personal tax bracket. The higher your marginal tax rate, the more tax you might owe after the sale of your business. As of 2025, the capital gains inclusion rate remains 50% (i.e., half of a capital gain is taxable), with a government plan to increase the rate to two-thirds starting January 1, 2026 for individuals on gains above $240,000 and for corporations and most trusts.
Both federal and provincial taxes apply in Canada, and each province sets its own rates—so your combined tax rate depends on where you live. For example, a sale in Quebec may be taxed differently than one in Alberta.
The way the deal is set up also matters. In an asset sale, you sell the business assets like equipment, inventory, or real estate. The seller pays tax on each type of asset according to CRA rules. Depreciable assets can trigger “recapture” (taxed as business income), while goodwill and non-depreciable property generally create capital gains; inventory is taxed as business income. In a share sale, you sell shares of the company, which may get special tax treatment. A hybrid sale mixes both, selling some assets and some shares. The sale structure you choose affects both the tax rate and the timing of payment.
Methods of Selling a Business in Canada: Asset Sale, Share Sale, Hybrid Sale
Canadian businesses are typically sold using one of three structures: share sale, asset sale, or a hybrid of both. Each comes with its own tax implications.
Share sale: May allow the seller to claim the lifetime capital gains exemption (LCGE) of up to $1.25 million per individual (effective June 25, 2024) on qualified small business corporation (QSBC) shares. This can make some or all of the gain tax-free. Share sales are also generally exempt from GST/HST because shares are a financial service.
GST/HST taxes: Selling certain business assets may require goods and services tax (GST) or harmonized sales tax (HST) to be added, depending on the type of asset and the province. If the buyer is acquiring “all or substantially all” of a business’s assets as a going concern, the parties may make a Section 167 election under the Excise Tax Act so that no GST/HST is charged on the sale (administratively, “substantially all” is often interpreted as ~90%).
Asset sale: Often creates capital gains tax on the profit from selling assets. Some assets may also require GST or HST. Watch for recapture on depreciable assets (taxed as income) and Class 14.1 treatment for intangibles like goodwill (ECP rules were folded into CCS Class 14.1 as of 2017).
Other considerations: LCGE rules, corporate tax factors, and eligible small business corporation (ESBC) status. The business structure, including use of a holding company, can also affect how much tax is payable. To access the LCGE on QSBC shares, common tests include: (1) you or a related person owned the shares for the 24 months before the sale; (2) >50$ of asset value was used in active business during that 24-month period; and (3) ≥90% at the time of sale.
Entrepreneurs might prefer an asset sale because they can choose the assets they want; however, sellers may face a bigger tax burden if they cannot use the LCGE. A share sale can be better for sellers when the sale price is high and LCGE applies. A hybrid sale can be used when both sides want to balance tax benefits.
The lifetime capital gains exemption is a major tax benefit for business owners in Canada. In 2025, this exemption lets qualified sellers avoid paying tax on up to a set amount of capital gains from selling a qualified small business. To use it, you must meet CRA rules at the time of sale. Many sellers check this with professionals before signing a deal. For intergenerational business transfers, Bill C-208 provides conditions under which sales to children may be treated as capital gains rather than deemed dividends.
Timing and payment structure: If you receive the sale price over time (e.g., vendor take-back, earn-out), you may be able to claim a capital gains reserve for up to five years on a share sale to spread tax.
Working with Professionals: Accountants, Business Brokers, Lawyers
It goes without saying that selling a business is a complex process. Hiring professionals not only helps taxpayers avoid mistakes, but they can offer advice to reduce your income tax bill and keep the sale on track.
An accountant can explain how the CRA will treat your sale, calculate your taxable capital gains, and suggest tax planning strategies that also consider ways to apply capital losses from previous years. They can review your business income and financial records, and point out deductions you may have missed for your tax return. They’ll also check if you qualify for the LCGE or other Canadian tax credits. They can also advise on the capital gains reserve, the Capital Dividend Account (CDA) for distributing the non‑taxable portion of a capital gain, and whether a GST/HST Section 167 election applies in an asset sale of a going concern.
A business broker can help set the right price, market the business to serious buyers, and manage negotiations. They also advise on deal structure, which can affect how much taxable income you report and when that income becomes payable.
A lawyer handles contracts, due diligence, and compliance with Canadian law. They can also address special situations, like selling to a family member or selling business assets separately from the company. Their work ultimately helps prevent legal disputes and protects you after closing.
Working with these professionals early gives you more time to plan for tax purposes, choose the best sale structure, and protect both your finances and peace of mind. Don’t forget the post‑closing housekeeping: depending on the transaction, you may need to deregister/close CRA program accounts (BN, payroll, GST/HST) and notify CRA of ownership changes.
Looking to sell your Canadian business? Explore listing options or find a business broker in our directory who can guide you through the process.