Are you thinking of selling a business in Canada? Learn more about what does it entail and what are possible tax implications in this video.
For those who prefer to read, a transcription is available below the video.
Good afternoon everyone. It’s Irfanali Moledina with RMI Professional Corporation. I hope everyone’s had a fantastic week and is enjoying the summer sunshine that we’re getting here in Calgary.
Today I wanted to touch on a topic that we’ve been getting asked a lot about lately and that is around selling your business.
What does it entail, what’s involved? What are the steps that are required? I’ll touch a little bit on this today but as you can tell it’s a very detailed topic.
So first and foremost most important thing. If you are going down this process please talk to an accountant at least. And go forward from there.
what's the value of your business?
One of the steps that you need to do is figure out what the value is. So a lot of people say it’s two to five times what we called Ebitda of your earnings which is your earnings before depreciation, interest, tax, and amortization.
Some other options along the way are getting a proper appraisal or valuation done on your business.
Once you’ve done that then the next question comes into play – are you going to list it?
How are you going to market it? And there are many different avenues along this path. Some people have different brokers. Business brokers and realtors are good in that space as well if you find the right one but it depends on the size of your business because a lot of times a bigger entity might be attracted to the business depending on how you set it up.
There are also different things like pension funds that are interested in acquiring turnkey businesses and if your business can fit their model then they’re a good avenue. You want to make sure you’re working with the right person that can actually help you sell your business for the most value.
tax implications of selling a business in canada
Once you get to the point where you’re going through and actually selling your business what are the tax implications involved?
And the biggest thing you gotta look at is how you sell your business. There are two different ways. You can do an asset sale or a share sale.
If you’re doing an asset sale what you’re essentially doing is you’re taking the assets of your business including the goodwill selling that to another party. Your company will pay capital gains tax on the growth of the company or the extra asset value you’ve got and then from there depending on your corporate structure you can take out the money as dividends or you can take out some of the leftover cash in a couple of different forms.
Now if you’re doing a share sale there are some advantages to that for a seller. And the biggest one is in Canada, we get your capital gains exemption. Currently, it’s close to $900,000 per person that you can use for the sale of shares for a Canadian-controlled private corporation. So if you went and sold your business for a million dollars and you did a share sale you’d only pay capital gains tax on around $100,000 of that sale. There’s a huge advantage to doing a share sale.
Once in a share sale what happens is the money comes to you personally, because you’re selling the shares personally or you have a corporation like a holding company then the holding company will take in that cash on that side. And the holding company unfortunately doesn’t get to use that personal exemption. So the holding company would pay capital gains tax.
And then from there, you have the option of how you’re going to distribute the funds that are
paid out to you.
do you need help with selling your business?
As you can see it’s a very complex deep topic. We’re always happy to help and guide you along the way if this is something you’re looking at doing.
But for sure if you are looking at selling a business, reach out to an accountant. Reach out. Talk to a professional. And get the assistance to make sure that you’re doing it in a manner that is the most tax efficient for you.
Have more questions about how to sell your business in Canada? Contact our office in NE Calgary to get help.
Book a Free consultation today or contact us at 403-457-4232 or by email at info@rmiassociates.com.
