Buying a business: should you buy the shares or the assets?

Summary

If you’re buying a Canadian business that’s incorporated (i.e. the business is owned and run by a company rather than by its owner personally), there are two ways to do it.

In a share purchase you buy the shares from whoever owns them, and the company carries on unchanged. It keeps its contracts, its staff, its bank accounts and its whole filing history, and all of that becomes yours, including the parts nobody has looked at.

In an asset purchase you buy the things the business is made of: equipment, inventory, the customer list, and goodwill (i.e. the value of a business beyond its physical stuff, meaning its reputation, its repeat customers, the fact that the phone rings). The seller’s company stays behind holding your money, and its history stays with it.

Three consequences follow from that difference between buying the company and buying its pieces:

1. Buying assets resets your tax cost in what you bought, meaning the amount the CRA lets you write off against future profits. It resets to what you paid, rather than to the smaller balance the seller had left after years of writing off the same equipment. Buying shares resets nothing.
2. Buying shares means inheriting every liability the company carries, including the ones nobody has found yet. Unfiled returns, sales tax assessments, and payroll deductions taken off staff pay but never sent to the CRA all arrive with the share certificates.
3. Only a share sale lets the seller use the lifetime capital gains exemption, a once-in-a-lifetime amount of gain an individual can take tax free on shares that pass a set of CRA tests (broadly, a small Canadian-controlled company running an active business). The amount is indexed, and for shares sold in 2026 it’s $1,275,000.¹ A seller whose shares pass has real money riding on a share deal, and one whose shares don’t has nothing at stake.

We’d usually open on an asset purchase, and treat a share deal as something you accept only if the seller takes money off the price. Expect them to resist, because an asset sale costs them more tax than a share sale does.² The discount you ask for has to cover the write-offs you’re giving up plus the risk of the old bills you’d inherit, and how much tax the seller is really saving turns on their own numbers, so we price both sides before you make an offer. Our default flips in three situations, all set out below, and the strongest is where the value of the business sits in contracts, licences or a lease that can’t move to you without somebody else’s written consent.

What the reset in tax cost is worth to you

Tax cost is what you eventually get to deduct, and equipment, vehicles and purchased goodwill come off your company’s income a percentage a year, through capital cost allowance (i.e. the tax version of depreciation). Buy the shares and nothing resets: the company keeps its own historical tax cost, which on a mature business is a small fraction of what you just paid.

That reset, called a step-up, is the strongest tax argument for buying assets. Goodwill sits in capital cost allowance Class 14.1 and comes off at 5% of the undeducted balance a year. Equipment in Class 8 runs at 20%, most vehicles in Class 10 at 30%, and computer hardware in Class 50 at 55%. All four are the ongoing rates, applying in every year after the first. Buy in 2026 from a seller you deal with at arm’s length and the first year is better. The rule halving a first-year claim doesn’t apply, and the deduction runs half again the class rate: 7.5% on goodwill and 30% on equipment. Computer hardware you have in use before 2027 comes off in full in the first year.³

To provide an example: pay $500,000 for goodwill and you deduct $37,500 in the first year, then 5% of whatever is left undeducted each year after that. A deduction cuts taxable income rather than arriving as cash, so a dollar of it is worth roughly your corporate tax rate, and goodwill takes decades to come off in full. On a business priced almost entirely on goodwill, the step-up can be worth less than the premium a seller wants for it.

What comes with the shares

Buying shares means buying the corporation’s whole past rather than a list of things. Take a worker who was paid as a contractor but was really an employee. If the CRA reclassifies them later, the company owes the payroll deductions it should have withheld, plus penalties and interest, and that company is now yours.

The CRA can also reopen returns it has already assessed, and those clocks start running before you show up. A Canadian-controlled private company’s income tax return can be reassessed for three years from the day the CRA sent the original notice of assessment, and its GST/HST returns for four years from the later of the day each was due and the day it went in. Two exposures have no time limit at all: amounts relating to a careless or deliberate misstatement in a return, and payroll deductions withheld from staff and never remitted.⁴

Your protection is an indemnity, a written promise that the seller reimburses you for specified losses. An indemnity from a retiring owner who has already spent your money is worth whatever they can still pay. Rather than rely on one, keep part of the price with a lawyer or an escrow agent until those windows have run. The clocks start at assessment and filing rather than at closing, so your lawyer dates the release off the seller’s own filings, and three to four years past closing is a common answer. Checking the books beforehand (“due diligence”) narrows what you’re taking on without closing it off, because you won’t find what was never written down.

What an asset purchase costs to close

Buying assets moves each item one at a time, so contracts, leases, licences and franchise agreements don’t come along on their own. Each one has to be formally transferred into your company’s name (“assigned”), and most only allow that if the other party agrees in writing (e.g. the landlord signing off on the lease). Every key customer, supplier and regulator therefore hears about your deal and gets a chance to renegotiate.

Sales tax on an asset purchase is more manageable than its reputation suggests. Selling business assets is normally a taxable supply, so GST/HST applies at 13% in Ontario. On $600,000 of taxable assets that’s $78,000 payable at closing, which a registered buyer claims back on a later return. However, the two sides can jointly elect under section 167 of the Excise Tax Act so that no tax is payable. The election is available only if you’re acquiring all or substantially all of the property needed to carry the business on, so cherry-picking a few assets rules it out.⁵ It also fails where the seller is registered for GST/HST and your company isn’t, so register the buying company before closing. File it on Form GST44 with the first GST/HST return your company files after closing, rather than at closing itself. Close in February as a quarterly filer, and it goes with the January to March return, due at the end of April.

What flips our default

Opening on an asset purchase is a default rather than a rule, and “always buy assets” would be poor advice. The three cases that flip it are agreements that need somebody else’s consent to move, a business that owns valuable real estate, and a goodwill-heavy price on books you can genuinely verify. Real estate makes the list because an asset purchase transfers the land and triggers provincial land transfer tax, which can cost more than the extra write-offs are worth, so we’d size both figures before recommending a route. In each of those three, take the shares, and keep part of the price back for a few years (a “holdback”) in place of the protection the structure can’t give you.

How often this changes

Structure gets settled once per deal, so what’s worth re-running is the set of inputs underneath it. Capital cost allowance rates and first-year write-off rules have moved repeatedly in recent years, most recently in March 2026. Confirm what’s in force before you agree the purchase price allocation, which is the split of the total price across each thing you’re buying (so much for equipment, so much for inventory, so much for goodwill). That split decides how fast each piece comes off your income. The exemption in point 3 above is indexed every January, which changes how much tax-free money a seller stands to lose on an asset deal. And if you might sell again within a few years, say so before we pick a structure, because that exemption carries a 24-month holding test that buying shares restarts at closing.

Closing thoughts

The structure argument absorbs most of the advisory hours in a small acquisition, and it rarely decides whether the purchase works out. What decides that is whether the business still functions once the person who built it stops answering the phone. Structure settles who carries which risk and how quickly you deduct what you paid, which is worth real money, but it can’t rescue a price paid for relationships that leave with the seller.

A purchase like this also needs a lawyer working alongside a tax adviser. Assignment consents, security searches and indemnity drafting are legal work, and Cadence is an accounting and tax services company rather than a law firm.

How we handle it

We price both structures on your actual numbers before you sign a letter of intent, including what the reset in tax cost is worth given how the price splits across goodwill, equipment and inventory. Then we file what the structure needs, including the GST44 election, which is due with your company’s first GST/HST return after closing rather than at closing. We also register the CRA accounts the new setup needs for corporate income tax, GST/HST and payroll.