When private company owners sell their businesses, tax can take a big bite out of their sale proceeds. Business owners who know in advance they intend to sell to an unrelated party rather than turn the business over to family members, ideally, should start planning two or three years before the actual sale to reduce their potential tax bill. Those who wait until a few months before a sale to think about minimizing tax can find they have far fewer options available.
Even if you don’t know exactly when you want to sell your business, it’s helpful to consider the most important tax question — whether it’s better to sell shares of the corporation that operates the business (the parent corporation), or to have the corporation sell the business’ assets.
Linda Richkum is a tax partner with KPMG Enterprise in Vancouver.