Canada: Selling a business, preserve lower tax rates | KPMG | GLOBAL
Share with your friends

Canada: Selling a business, preserve lower tax rates now

Canada: Selling a business, preserve lower tax rates

Owner-managers who are thinking about selling their “Canadian-controlled private corporation” need to consider the effect of new measures that will change the way “eligible capital property” (ECP) is taxed.


Related content

Whether considering selling the business to the next generation, to key employees, or to third parties, taking precautionary steps now can help sell the business at relatively lower current corporate tax rates and thus preserve access to a significant tax deferral that may not be available starting in 2017. In particular, if a significant value of a Canadian-controlled private corporation is in its ECP (e.g., goodwill), and the owner-manager has no immediate personal need for the sale proceeds, a tax deferral of approximately 12% may be lost. 

Ideally, completing the sale of the business before 31 December 2016 will retain this tax deferral. If this is not feasible, an internal sale of ECP could be considered, depending on the circumstances. ECP may include intangibles—such as goodwill, trademarks, customer lists, and certain licenses, including farm production quotas. 

Changes effective 2017

Canada’s Finance Department released proposed rules for the taxation of ECP on 29 July 2016 that builds on the ECP changes first introduced with the 2016 federal budget. Generally, the new rules will tax a sale of ECP as capital gains effective 1 January 2017, subject to certain transitional rules. Currently, gains from the sale of ECP are taxed at half of the active business income tax rate. 


Read a September 2016 report [PDF 100 KB] prepared by the KPMG member firm in Canada

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal