How we help
- Asset-sale vs. share-sale tax modelling
- QSBC purification for LCGE eligibility at sale
- Earn-out structuring to defer tax on contingent consideration
- Vendor-takeback note structuring (capital reserve under s. 40(1)(a)(iii))
- Section 22 elections for receivables and inventory
- Section 88(1) bump on post-sale amalgamation
- Coordination with post-sale wealth-management transition
The structure question
Every Canadian business sale involves a foundational structural question: is the transaction an asset sale or a share sale? Buyers usually prefer assets (stepped-up tax basis, no inherited tax liabilities); sellers usually prefer shares (single level of tax, LCGE eligibility, simpler exit). The reality on most deals is a negotiated middle — typically a share sale with carve-outs, or an asset sale with specific reps and indemnities — and the tax cost of the negotiated outcome can swing materially based on the seller's structure going in.
Share sale — when it's available
A share sale produces a capital gain to the seller equal to the proceeds less the share cost base. For qualifying QSBC shares, up to $1,016,836 of that gain (2024 indexed) is sheltered by the Lifetime Capital Gains Exemption. Where the shares are held by a family trust with multiple beneficiaries, the LCGE can be multiplied — sheltering several million dollars of gain across the family.
For a clean share sale, the corporation must satisfy the QSBC tests at the time of sale and for the 24 months preceding. The 90% asset test (90% of FMV in active business assets) is the test most likely to be missed if the corporation has accumulated passive investments. Purification (moving the passives out to a separate holdco) addresses this — but only if started in time.
Asset sale — when it's required
Many sales end up as asset sales because the buyer insists on it: they want the stepped-up basis for amortization, they don't want to inherit the corporation's tax liabilities or contingent claims, or they want to leave specific contracts behind. Asset sales produce two layers of tax: corporate tax on the asset gains (at general rates, since the disposition often disqualifies the SBD), and personal tax on the eventual dividend out of the corporate proceeds. The combined rate is usually 50%+ in Ontario at top brackets.
The mitigations for asset-sale tax cost include:
- Section 84(2) wind-up after the asset sale — converting the corporate-level proceeds into capital-gains-rate distributions to the shareholder.
- Capital-dividend account utilization — the non-taxable half of corporate capital gains feeds the CDA, distributable as tax-free dividends.
- Charitable giving — corporate donations of part of the proceeds reduce the corporate tax bill and produce a CDA credit when the donated asset has accrued gain.
Earn-outs and vendor financing
Most sales include some form of contingent consideration — an earn-out tied to post-closing performance, a vendor takeback note, or a holdback. The tax treatment of contingent consideration affects when the seller actually pays the tax:
- Section 40(1)(a)(iii) capital reserve — for a vendor takeback note, the seller can spread the capital gain over up to five years, paying tax as the note is collected rather than all at closing. The reserve must reduce by at least 20% per year.
- Section 12(1)(g) earn-out treatment — earn-outs tied to future performance are typically taxed on a "cost-recovery" basis (no tax until cumulative cost is recovered, then ordinary income on the excess) or, in narrow circumstances, as capital gains via Section 13(7).
Pre-sale planning checklist
For an anticipated sale 24+ months out:
- Confirm QSBC eligibility today and identify any purification needed.
- Review the trust structure for LCGE multiplication.
- Crystallize the LCGE on existing accrued gain if QSBC status is at risk.
- Move excess passive investments out of the operating company.
- Convert any prepaid sale negotiations into proper LOIs to start the contingent-consideration timing.
Post-sale planning
After the sale closes, the post-sale planning shifts to wealth management: post-mortem-style pipeline structures if the corporate vehicle is being wound up, ongoing holdco for the sale proceeds, charitable-giving deployment from the windfall year, and the owner's new tax position as a non-active investor.
How we work the file
Sale-side engagements at Barrett Tax Law typically begin 24-36 months before the anticipated closing. We do the pre-sale structural review, work alongside the deal counsel and the M&A advisor through the LOI / definitive agreement, draft the tax sections of the SPA, and handle the post-closing T1 and corporate filings. Fixed fees are typical for the planning phase; hourly for the deal execution.
What to expect when you call us
Your first call is a free, no-obligation consultation with a tax lawyer. We will review the details of your situation, explain your options under the Income Tax Act and CRA administrative practice, and give you a clear, fixed-fee quote if you choose to retain us. Your consultation is confidential, and once we are retained, communications are protected by solicitor–client privilege.
If you retain us, we begin work within 24 hours of being retained.
Frequently asked questions
Is the consultation really free?
Yes. Most cases qualify for a free, no-obligation consultation with one of our tax lawyers. During the call we'll review your situation, explain your options, and give you a clear quote if you decide to retain us.
What does a tax lawyer do that an accountant does not?
A tax lawyer focuses on the legal side of tax — disputes, litigation, and the structuring of transactions in light of the law and anti-avoidance rules. That includes representing taxpayers in CRA audits and objections, appearing at the Tax Court of Canada, defending penalties and director or derivative liability, and designing reorganizations such as section 85 rollovers and estate freezes.
The most practical distinction is privilege. Communications with a lawyer are generally protected by solicitor-client privilege, while communications with an accountant generally are not and can be demanded by the CRA. Where the facts are sensitive or the matter could become contentious, that protection matters.
Lawyers and accountants often work together — the accountant on the numbers and filings, the lawyer on strategy, privilege, and the legal record. Barrett Tax Law regularly coordinates with a client's existing accountant.
Do you serve all of Canada?
Yes. Barrett Tax Law represents clients across Canada. We have offices and local phone lines in Toronto, Calgary, Edmonton, Fort McMurray, Ottawa, Vancouver, and Winnipeg, plus a national toll-free line at 1-877-882-9829.
Who is Barrett Tax Law and what areas does the firm handle?
Barrett Tax Law is a Canadian boutique tax law firm that represents individuals and businesses in their dealings with the Canada Revenue Agency. The firm's work spans CRA audits and disputes, voluntary disclosures, Tax Court of Canada litigation, collections matters, and corporate and estate tax planning.
The firm was founded in 2009 and has represented many thousands of clients across Canada. Its head office is in Concord, Ontario (Vaughan), and it serves clients nationwide. You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX).
Most matters qualify for a free, no-obligation consultation, and most are quoted on a fixed-fee basis once scope is understood, so the cost is known before work begins.
What does a tax lawyer do that an accountant cannot?
Accountants prepare returns and financial statements. Tax lawyers represent you when those returns are challenged, audited, or prosecuted — and our communications are protected by solicitor–client privilege, which accountant communications generally are not.
What should I do if I receive a letter from the CRA?
First, identify what the letter is and what it requires. A CRA letter may open an audit, ask for documents, propose adjustments (a proposal letter), confirm a reassessment, or start collection action — and each carries its own deadline and its own implications. Note any date by which a response is required.
Do not ignore it, and be careful about responding off the cuff. What you say and produce can shape your later objection and appeal position, and casual admissions can be difficult to undo. If the letter proposes adjustments or penalties, or if significant amounts are involved, get advice before responding.
A free consultation can help you understand the letter, the deadline, and the right next step. Acting early — while options are still open — is usually far better than waiting until a deadline is near.
Will the CRA criminally prosecute me?
Most CRA disputes are civil. Criminal prosecution is reserved for serious tax evasion or fraud, usually involving deliberate misrepresentation. If you have unreported income, a voluntary disclosure is one of the standard ways to reduce criminal-prosecution risk.
Is the first consultation really free?
Yes. Most matters qualify for a free, no-obligation consultation with an experienced tax lawyer. The consultation is a chance to describe your situation, get a clear sense of the options and likely path, and receive a fee structure in writing before you commit to anything.
You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX) to arrange a confidential consultation. The head office is in Concord, Ontario (Vaughan), and the firm serves clients across Canada.
Are my communications with a tax lawyer confidential?
Yes. Communications between you and your lawyer for the purpose of obtaining legal advice are generally protected by solicitor-client privilege, one of the most strongly protected confidences in Canadian law. In practical terms, the CRA generally cannot compel disclosure of privileged communications.
This is an important difference from working with an accountant or other non-lawyer representative, whose communications and working papers can generally be demanded by the CRA. Where the facts are sensitive — unreported income, offshore assets, or potential penalties — that protection can be significant.
Privilege has limits and can be waived inadvertently, so it should be handled with care. A consultation can explain how privilege applies to your particular situation.
How fast can you start on my case?
We typically begin work within 24 hours of being retained. For audit deadlines, Notices of Objection, and other time-sensitive matters, we move immediately.
What if I have unfiled tax returns from many years ago?
We routinely handle 5+ years of unfiled returns. Through the Voluntary Disclosures Program — applied for before the CRA contacts you — we can usually eliminate gross-negligence penalties and limit interest exposure.