The companion to Selling Your Business in Canada.
This is the operational layer. It is meant to be opened next to the strategic guide and the succession plan — and worked through in order, with the seller's CPA and corporate counsel, over the 24 months before a target close date.
Read the strategic context first in Selling Your Business in Canada and Succession Planning. Then use this checklist to actually move.
Phase 1 · 24–18 months out.
Confirm the corporate stack.
- Confirm CCPC status and ownership chain (Canadian residency of all controlling shareholders).
- Verify or implement an estate freeze if not already done — see the Section 85 guide.
- Confirm or settle a discretionary family trust holding the growth common shares.
- Engage a CBV for a baseline valuation. This number anchors every later decision.
- Order a tax-structure memo from corporate tax counsel: target deal structure, LCGE plan, post-close cash flow.
Inventory the policies.
- List every policy owned by opco, holdco or the family — face amount, owner, beneficiary, cash value, CDA position.
- Identify policies that need to move out of opco before sale (typically corporately owned permanent insurance on the seller).
- Coordinate with COLI advisor on the cleanest transfer mechanism — to holdco, to the seller personally, or to a family trust — and the timing relative to QSBC tests.
Phase 2 · 18–12 months out.
Start the asset test clock.
- Quantify passive assets in opco: excess cash, marketable securities, non-operating real estate, idle investments. Calculate active vs. passive percentage.
- Move passive assets out of opco via intercorporate tax-free dividend to holdco, or via repayment of inter-company loans.
- Convert passive cash into active-use assets where appropriate (equipment, inventory, working capital), not as an accounting trick but as a real operational move.
- Track active-asset ratio monthly — both the 50% throughout-24-months test and the 90% at-sale test must be met.
- Confirm 24-month share-holding period for every shareholder who intends to claim the LCGE (including each adult trust beneficiary if multiplying).
Crystallize the LCGE if rules concern you.
- Decide whether to crystallize the LCGE now under a voluntary section 85 election — useful if the 2026 inclusion rate or LCGE limits change, or if QSBC status may not hold to close.
- Model AMT exposure of the crystallization on the personal return — AMT can be material on a $1.25M+ gain.
- Coordinate with CNIL position — investment-loss / investment-income history can reduce available LCGE.
Phase 3 · 12–6 months out.
Clean financials and operational story.
- Three years of clean, reviewed (or audited) financial statements — buyer's quality-of-earnings team will tear them apart.
- Normalize EBITDA add-backs: discretionary owner expenses, personal vehicles, life insurance premiums, family salaries above market.
- Year-end personal tax return is filed on time for the seller (and trust returns for the family trust).
- Document recurring vs. one-time revenue; build the customer-concentration table that the buyer will ask for.
- Strengthen the management team — buyers discount heavily for owner-dependent businesses.
Get ahead of the data room.
- Build the data room: corporate records, cap table, minutes, shareholders' agreement, material contracts, IP, employee files, litigation.
- Resolve corporate housekeeping: missing minutes, expired shareholders' agreements, unsigned IP assignments, unfiled trade-mark registrations.
- Clear historical CRA matters: any open notices, unfiled returns, unresolved audits.
- Confirm the lawyers: corporate M&A counsel, tax counsel for the deal, estate counsel for the proceeds.
Phase 4 · 6–3 months out.
Engage advisors and approach buyers.
- Sign the M&A advisor mandate; agree on process (limited auction vs. negotiated), buyer universe and timeline.
- CIM and teaser drafted and approved by management, legal and tax.
- Confirm LCGE allocation strategy within the family trust: which beneficiaries, what amounts, supporting documentation.
- Re-run purification position as the close date approaches; ensure no inadvertent passive-asset accumulation.
Final policy positioning.
- Complete COLI transfers out of opco at least 90 days before close; document properly to preserve CDA value.
- Close, restructure or reassign key-person and buy-sell policies; align with whatever the new ownership structure looks like.
- Pre-build the post-close personal/holdco insurance plan — an IRP, additional COLI inside holdco, or new family-trust-owned insurance often makes sense with the new liquidity.
Phase 5 · 3–0 months out.
Lock the structure.
- Letter of intent reviewed by tax counsel before signing — share vs. asset, escrow, holdback, earnout treatment.
- Confirm allocation of consideration across share classes (preferred vs. common) and trust beneficiaries to optimize LCGE multiplication.
- Trust-distribution resolutions prepared for the year of sale, designating capital gains to beneficiaries claiming the LCGE.
- Closing tax memo from CPA confirming after-tax outcome by shareholder.
- Solicitor's pre-close checklist: directors' resolutions, share-transfer documents, escrow agreements, signed reps and warranties.
The single most-missed step in this phase is the trust distribution resolution. The trustees must actually resolve, in writing, to allocate the year-of-sale capital gain to the beneficiaries claiming the LCGE — and the resolution must be dated within the trust's tax year. A late or missing resolution can collapse the entire LCGE multiplication plan.
Phase 6 · Post-close.
Settle the structure and the proceeds.
- File the section 85 T2057 (if used) on or before the personal/corporate filing deadline for the year of close.
- File the LCGE claim on each individual return claiming the exemption; coordinate AMT planning.
- Trust T3 return filed with capital-gain allocations to beneficiaries; T3 slips issued.
- Roll proceeds into a personal investment holdco or family-trust portfolio per the post-close plan.
- Implement the new tax-shelter layer: typically an IRP on the seller, additional COLI inside the new investment holdco, and (where applicable) an Individual Pension Plan funded from any consulting income retained post-close.
Refresh the estate plan.
- Will and powers of attorney updated to reflect new asset mix.
- Beneficiary designations refreshed on RRSP, TFSA, RRIF and life insurance.
- Consider an Alter Ego Trust or Joint Partner Trust for probate-bypass on the new personal investment portfolio — see the AET guide.
- Charitable giving plan updated to take advantage of donations-of-securities rules.
Where sales go wrong.
Purification too late
Starting the active-asset push at 6 months out, not 24, leaves the corporation failing the 24-month asset test on the day of close — costing the LCGE entirely.
Trust distribution not resolved in time
Trustees forget to formally resolve the LCGE allocation within the trust's tax year. Without the resolution, the gain stays in the trust at the top rate.
COLI left inside opco
The seller's corporately owned permanent insurance was never transferred out of opco. The buyer either inherits the policy (rare) or the seller scrambles to move it days before close — often triggering deemed-disposition issues.
LOI signed without tax review
Asset-vs-share, escrow, earnout and holdback structures are economically and tax-meaningfully different. Once the LOI is signed, the buyer treats those terms as baseline. Tax review before signature is non-negotiable.
No post-close plan
Sale proceeds land in the seller's personal account at top marginal investment-income rates. Without a holdco, family trust or insurance-based tax shelter pre-built, the seller pays maximum tax on every future dollar of investment growth.
FAQ
No — the QSBC 24-month asset test and 24-month holding test are statutory and cannot be shortened. If the corporation fails either test at sale, the LCGE is not available. Crystallizing earlier under section 85 is the only way to lock in LCGE for the period already held, regardless of future qualification.
Negotiate compensation. An asset deal is materially worse for an incorporated Canadian seller — the LCGE is unavailable, hard-asset gains are double-taxed if the seller eventually pulls proceeds personally, and recapture on depreciable property is taxed as fully taxable income. Sellers will typically demand 15–25% more on an asset deal to bridge the after-tax gap. If that gap can't be closed, the deal isn't the right one.
For deals under roughly $3M, the cost of an investment-banking advisor often exceeds the value added. For deals between $3M and $30M, a specialist M&A advisor is almost always worth the fee — they manage the auction, sharpen valuation, and protect terms in the LOI. Above $30M, a full-service investment-banking process is the norm.
Earnouts are typically taxed using either the cost-recovery method (CRA's general approach for genuine earnouts tied to future performance) or the reverse-earnout method (where the maximum is treated as proceeds at close, with downward adjustment). Holdbacks are normally included in proceeds at close, with later reductions handled by amended returns. The mechanic chosen affects LCGE timing — model both before signing.
Personal-life policies typically continue unchanged. Corporately owned permanent insurance on the seller, if not transferred out before close, becomes a policy held by an entity (the buyer's new structure) that has no economic interest in the insured. Most sellers transfer those policies into holdco — preserving the CDA position and the cash-value asset — well before close.
Footnote
This publication is protected by copyright. Goald & Co Financial Inc. is not engaged in rendering tax or legal advice. This guide contains a general discussion of certain tax and legal developments and should not be construed as tax or legal advice. Should you wish to discuss this or any other Goald & Co guide, please contact info@goald.ca.
Continue with the related references.
This checklist works alongside the strategic guides. Read these in order for the full picture.
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Every link below points to the specific statute, CRA technical publication, form, or court decision that supports a factual claim made in this guide. Analysis, opinions, and illustrative figures are Goald & Co's own and are not attributed to these sources.
Disclaimer. This checklist is an educational reference compiled by Goald & Co Financial Inc. The sale of an incorporated Canadian business involves significant legal, tax, accounting and insurance considerations that depend on detailed facts. Every item here must be implemented in coordination with the seller's CPA, tax counsel and corporate M&A counsel. Nothing here is tax, legal, accounting or investment advice.