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How are you taxed when you sell a small business?


I will focus on the income tax implications of the sale. The tax treatment will vary depending upon whether your business was a sole proprietorship or a corporation. 

What you can sell as the owner of an unincorporated business and the tax implications

When a sole proprietor sells their business, they are selling the assets of their unincorporated company. Assets can include intangible items like goodwill or clients, as well as tangible items like inventory or machinery. You may sell some or all of the assets. 

The sale is generally taxable as a capital gain based on the difference between the proceeds and the cost of the assets, with personal tax ranging from 0% to 33%, depending upon your other sources of income and your province of residence. 

If you have claimed depreciation on the assets, there may be a recapture with past depreciation (capital cost allowance) brought into income and generally taxable at rates ranging from 0% to 55% depending upon your income and province. 

When an incorporated business owner sells their business, the tax treatment depends upon whether it is an asset sale or a share sale, Peter. 

What about for the owner of an incorporated business?

When you sell the assets of a business, your corporation is selling assets to a purchaser, and you continue to own the corporation afterward. You may sell some or all of the assets. 

The proceeds less the cost is generally taxable as a capital gain, with corporate tax in the 25% range payable on the income. If you have claimed depreciation on these assets, there may be a recapture with past depreciation (capital cost allowance) brought into corporate income and generally taxable at rates between about 10% and 30% depending upon your province and other factors.

When you sell the assets of your business, your corporation sells them, yet you own the corporation. You may sell some or all the assets. Generally, the proceeds minus the cost amount is taxable as a capital gain, with corporate tax in the 25% range payable on the income depending on your province. If you claim depreciation of these assets, there may be a recapture with past depreciation (a.k.a. capital cost allowance) brought into corporate income. And taxable at rates tend to be between 9% and 31%, depending upon location and other factors.



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