Two offers for the same business — one structured as a share sale, one as an asset sale — are rarely pricing the same thing twice. Each side is pricing in a different tax advantage that only exists under its preferred structure, which is why the headline dollar figures alone tell an incomplete story.
Key takeaways
When a vendor and a buyer land on different headline prices for a share deal versus an asset deal, the gap is rarely one side simply being more generous. Each structure carries its own tax mechanics, and those mechanics are what the two prices are actually reflecting — not just negotiating leverage.
The exemption in section 110.6 of the Income Tax Act is the single biggest reason a vendor pushes for a share sale over an asset sale. The Act's own formula caps the deduction at “$625,000” of qualifying capital gain, and because section 38(a)'s general half-inclusion rule means only half of a capital gain is taxable, that $625,000 figure corresponds to a gross capital gain of $1,250,000 — a distinction worth stating precisely, since the $625,000 figure describes taxable gain, not the underlying sale price. The exemption reaches only qualifying small business corporation shares or family farm and fishing property; it does not exist for an asset sale at all, because an asset sale does not generate the kind of capital gain on shares the exemption is built around. The amount also indexes: section 117.1(2)(c) adjusts the $625,000 figure to the Consumer Price Index for taxation years beginning after 2025, so the current-year indexed figure should always be confirmed rather than assumed.
An asset sale runs through a different mechanism entirely. Section 13(1) of the Income Tax Act triggers recaptured capital cost allowance where the amounts realized on disposing of depreciable property exceed the remaining undepreciated capital cost of that class — the excess “shall be included in computing the taxpayer's income of the year,” and that income lands on the seller. The flip side is what makes an asset deal attractive to a buyer: it acquires those same assets at a fresh, stepped-up cost base, worth more in future depreciation claims than inheriting the seller's older, already-depreciated basis on a share deal. A treadstonelaw answer on who controls price allocation among assets puts the opposing incentives directly: “sellers typically prefer more value allocated to goodwill, which is taxed more favourably as a capital gain, while buyers often prefer more allocated to equipment and other depreciable property, which gives them a higher cost base to claim future depreciation against.”
The same source is clear that the allocation is a genuine negotiation, not something either side simply decides: “neither side unilaterally controls it — allocation is a negotiated term of the purchase agreement that both parties need to agree on,” and “whoever has stronger negotiating leverage, or better tax advice going into the discussion, can end up shaping the final number more than the other side.” The same answer flags the downstream risk of leaving it unresolved: an allocation left vague, or one where the buyer and seller end up filing inconsistent numbers, risks CRA scrutiny.
The section 167 election discussed throughout this hub exists to solve a problem that only arises on an asset or business transfer — without it, a sale of individual business assets would attract GST/HST property by property. A share sale never needs that election at all, because it is a transfer of the corporation's shares, not of the underlying assets — the machinery in section 167 simply has nothing to apply to. That is a real, if easy to overlook, difference in how the two structures are priced: the GST/HST planning that consumes real negotiating time on an asset deal is not a live issue on a share deal at all.
Where part of the price is deferred — a vendor take-back, an instalment sale — the capital gains reserve in section 40 of the Income Tax Act caps how long a vendor can spread the resulting gain into income. The ordinary rule allows a reserve equal to the lesser of a reasonable amount and one-fifth of the gain multiplied by the number of years short of four preceding taxation years — a maximum five-year spread. A ten-year reserve exists, but only on three specific routes: a disposition to the taxpayer's own child of farm or fishing property or qualified small business corporation shares, an intergenerational business transfer meeting the conditions in subsection 84.1(2.31) or (2.32), or a disposition to an employee ownership trust. An ordinary arm's-length vendor take-back on a third-party sale — the shape most PE transactions actually take — only ever qualifies for the standard five-year spread, not the longer one.
The Newco-versus-target structuring choice that shapes the buyer's side of this pricing question is covered in acquiring through a newly incorporated company, the full historical-liability exposure a buyer is implicitly pricing into a share deal is covered in buying the shares of a company with a bad history, and the assumed-liabilities schedule that shapes the corresponding asset-deal price is covered in assumed liabilities in an asset transaction.
A vendor is comparing two offers for a QSBC-qualifying business: $6.0 million structured as an asset sale, or $5.6 million structured as a share sale. These figures are illustrative inputs for the arithmetic below, not a claim about how large a real market gap tends to run. On the share sale, up to $625,000 of the vendor's taxable capital gain — the taxable half of roughly $1,250,000 of gross gain — is sheltered by the lifetime capital gains exemption, with anything above that taxed as an ordinary capital gain. On the asset sale, the corporation itself pays corporate tax on any recaptured capital cost allowance and on the capital gain attributed to goodwill, and getting the after-tax proceeds out to the vendor personally is a second layer of tax on top of that. On the buyer's side, the $6.0 million asset price buys a freshly stepped-up capital cost allowance pool that supports larger future depreciation claims than inheriting the target's existing, already-depreciated pool under the $5.6 million share structure — which is part of why the buyer is willing to pay more for the asset structure in the first place.
The lifetime capital gains exemption, which can shelter up to $625,000 of taxable capital gain on qualifying shares, is only available on a share sale — it does not exist for an asset sale, which generates a different kind of gain at the corporate level instead.
An asset sale gives the buyer a fresh, stepped-up cost base in the purchased assets, supporting larger future capital cost allowance claims than inheriting the seller's existing, already-depreciated basis under a share sale.
No. The ordinary capital gains reserve caps deferral at five years; a ten-year reserve is available only on a disposition to the vendor's own child, a qualifying intergenerational business transfer, or a disposition to an employee ownership trust — not on a standard arm's-length third-party sale.
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