Updated Checked by the Tax-Services.ca editorial team How we check
Financial planning for mergers and acquisitions in Canada starts with one choice: are you buying the shares or the assets? That choice drives the income tax, the GST/HST and the paperwork on both sides. A seller who sells qualifying small business shares may shelter up to about ,275,000 of gain under the lifetime capital gains exemption for 2026 ($1,250,000 for 2025), and a buyer who takes over a whole business may avoid GST/HST on the assets with a joint election. Neither relief is automatic.
Shares or assets, and who cares?
Both sides do, for opposite reasons. The seller wants the gain taxed as lightly as possible. The buyer wants a cost base it can use and no surprises inside the company it buys.
No CRA page compares the two structures side by side, so this page won’t rank them. What it can give you are the rules that shape each path, taken from the official pages. Then your advisers price your own deal.
What questions should you take to your advisers?
Before anyone drafts a letter of intent, put these to your accountant and lawyer. They’re short, and the answers shape the price.
- Are we selling shares or assets, and what does each cost us in tax?
- Do the shares qualify for the lifetime capital gains exemption?
- Can we use a rollover, and what happens if some of the price is cash?
- Is the GST/HST election available, and who files the form?
- What records do we need to keep after closing?
An hour spent on these before signing is cheaper than a year spent fixing them afterwards.
What a seller keeps after tax
Take a gain of $95,000 in Ontario. Our capital gains calculator adds half of it, $47,500, to income and shows $17,450.83 of extra tax, which is 18.4% of the gain, using the tool’s default income for the rest of the year. You’d keep $77,549.17.
That figure assumes the 50% inclusion rate. The proposed increase to two-thirds was cancelled by the Prime Minister’s release of 21 March 2025. The inclusion rate is still 50% for 2026, but check before you sign.
The calculator applies the lifetime capital gains exemption only when you tick the box for qualified property. The CRA puts the limit at $1,250,000 for 2025 and about ,275,000 for 2026 for qualifying dispositions, including qualified small business corporation shares. The tests for qualifying shares are strict and this page doesn’t cover them. A $95,000 gain on shares that pass the tests could be sheltered in full. On shares that fail, you owe the tax above.
Rollovers that defer the tax
Some deals let you postpone the gain. Two rules come up most.
| Rule | What it does, per the CRA |
|---|---|
| Section 85 | Lets you transfer property to a taxable Canadian corporation on a tax-deferred basis, at an agreed amount that is no more than fair market value and no less than any non-share payment |
| Section 85.1 | A rollover for exchanging shares of one Canadian corporation for newly issued shares of another, when the old shares are capital property |
Here’s the catch that surprises people. If you take cash or other non-share consideration worth more than $200 in a share exchange, you report the gain or loss. So a deal that mixes shares and cash is partly taxable now. The agreed price of the property is a number you and the other side set, so document how you got there.
Buying a business and the GST/HST
A buyer of business assets can face GST/HST on the purchase price. Under section 167 of the Excise Tax Act, you and the seller can jointly file Form GST44 when you acquire all or substantially all, at least 90%, of the property needed to run the business. You must be able to keep operating with what you bought. The election isn’t open if the seller is registered and you are not. The CRA’s GST/HST memorandum on the sale of a business spells out the conditions.
To see the stakes, put $2,000,000 of assets into the GST/HST calculator for Ontario. It shows $260,000 of HST. Without an election that’s cash you’d fund on closing, then claim back later, if you are entitled to. The claim-back rules aren’t covered here. With the election, no GST/HST is payable on the transfer of those assets.
Some supplies still attract tax under the election. The CRA lists services the seller still has to perform, leases and licences, and taxable real property sold to a buyer who isn’t a registrant.
Planning the cash after closing
A deal that works on paper can fail on cash. Build a plan for the first year: debt payments, tax instalments, payroll and the integration costs nobody priced. Then stress it with a bad quarter.
Corporate tax is part of that plan. The corporate tax calculator gives an estimate of the combined rate, but Ontario’s 2026 small business rate is a derived blend and not a published figure, so use it as a rough guide. Then check what the combined business earns after tax with the ROI calculator. Compare that with what the loan costs you using the loan calculator, as a rough test of borrowing.
Keep the paperwork. The CRA says records on the share registry, and on property that would affect a later sale or wind-up of the business, are kept indefinitely. A deal file with the agreed amounts and the signed elections belongs in that pile.
Where deals go wrong
Price the target, and price the seller’s tax too. If the seller nets less than expected, the talks can reopen late. Another slip is missing a deadline. The GST44 must be filed by the recipient on or before the day its return for the first reporting period would be due. Read the instructions on each form you sign.
It also helps to agree early who prepares each form. Two advisers who each assume the other has the election covered is how it gets missed, and a missed election can mean a large HST bill at closing.
And then there’s cross-border. Tax treaties and foreign rules affect some deals, and none of that was verified on official pages, so nothing is said about it here.
Where the numbers come from
The exemption limit comes from the CRA‘s capital gains deduction page. Rollover rules come from CRA guidance on transfers of property to a corporation and share exchanges. The GST/HST election comes from CRA publications and Form GST44. All of it was checked in September 2026. Dollar examples come from our calculators. No level of government runs or endorses this site.
Frequently asked questions
What is the lifetime capital gains exemption for 2025?
The CRA puts it at $1,250,000 for qualifying dispositions, including qualified small business corporation shares. Indexation resumes in 2026, and we haven't confirmed the 2026 figure.
Can a buyer avoid GST/HST on business assets?
Sometimes. The buyer and seller can jointly file Form GST44 if the buyer acquires all or substantially all (at least 90%) of the property needed to run the business.
What does section 85 do?
It lets you transfer property to a taxable Canadian corporation on a tax-deferred basis, at an agreed amount within the limits the CRA sets.
Is cash in a share exchange taxed?
The CRA says that when non-share consideration is worth more than $200, the vendor reports the gain or loss.
What records do I keep after a deal?
Records of the share registry and of property that affect a later sale or wind-up are kept indefinitely.
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