Our office has extensive expertise in designing succession planning structures to facilitate optimal tax planning, long-term efficient use of capital and other business resources, while ensuring compliance with the Canadian Income Tax Act.
When a private company changes hands — to your children, to a key employee, or to a buyer you know personally — the Income Tax Act does not automatically treat that transfer the way you'd expect. Left unstructured, a sale or gift to a related party can be recharacterized as a taxable dividend instead of a capital gain, stripped of access to the lifetime capital gains exemption, or trigger an unexpected deemed dividend on redemption — turning what should be a rewarding transition into a costly one.
Succession planning re-engineers your corporate and share structure ahead of the transfer: choosing the right method for your situation, sequencing every step correctly, and documenting the transaction so it withstands CRA scrutiny.
Every succession plan we design moves through three stages.
We start by fully mapping where things stand today, including:
You can't design a tax-efficient transfer around a structure you haven't fully mapped first.
Your plan is built as a fully documented package, selecting from the methods available to your situation:
Every strategy is matched to your specific facts — not applied as a one-size-fits-all template.
Your diagnostic gives you the plan. We support you and your successors through carrying it out:
Your successors shouldn't have to interpret a technical memo while running the business.
Without the right structure, transferring your business to family or a trusted successor can cost far more in tax than selling to a stranger.
When shares of a private corporation move to a related person — a child, a family trust, or a corporation they control — the Income Tax Act applies special rules aimed at preventing "surplus stripping": converting what would otherwise be a dividend into a lower-taxed capital gain. Here's how those rules can catch an unplanned transfer:
A sale of your shares to a corporation controlled by a related party can be recharacterized so that the proceeds are taxed as a dividend rather than a capital gain — often roughly doubling the tax rate on the same dollar of value, and denying access to the capital gains exemption.
Where new shares are issued to a related party as part of the transaction, the paid-up capital of those shares can be reduced — "ground down" — to the paid-up capital of the shares given up, eliminating a return-of-capital option your successor might otherwise have relied on.
If shares are redeemed or repurchased by the company itself as part of funding the transition, the amount paid in excess of paid-up capital is deemed to be a dividend — not a capital gain — even where a sale to an arm's-length party would have qualified for capital gains treatment.
Left unplanned, a transfer to your own children can be taxed more heavily than a sale to a total stranger — the opposite of what most business owners expect.
Depending on your facts — your successors, your timeline, and how quickly you want to give up control — we typically design around one of these three approaches, or a blend of more than one.
We use a section 85 rollover to exchange your common shares for fixed-value preferred shares, freezing the value of the company in your hands at today's number. New low-paid-up-capital common shares are then issued to your successor — directly or through a family trust — so all future growth in the business accrues to them from that point forward, while you retain the preferred shares, and the income and control rights attached to them, for as long as you choose.
For a genuine transfer of your business to your children (or, depending on the structure, other qualifying family members), the Income Tax Act provides a path for the sale of your shares to a company controlled by them to be taxed as a capital gain rather than a dividend — provided specific conditions around control, management transition, and your successor's ongoing involvement in the business are met and properly documented. We test your facts against these conditions, structure the transaction to satisfy them, and file the required elections.
Where your successor needs time — and often outside capital — to fund the purchase, we structure a buyout by a company owned by your successor together with arm's-length co-investors, with the purchase price paid over a multi-year schedule secured by vendor take-back notes. This lets your successor build up ownership and control gradually, brings in outside capital and expertise where needed, and gives you a documented, secured stream of proceeds rather than a single lump-sum sale.
Often, the right answer isn't just one of these — it's a coordinated combination, sequenced together as part of a single plan.
A well-designed succession plan pays off in more than one way.
Most succession plans realize more than one of these benefits from a single, well-timed structure.
Every dollar your corporation has built up in value only has two possible destinations when you step back: your family and successors, or the CRA. Which one gets the larger share depends almost entirely on how — and in what order — the transfer is structured.
We test every transfer against the rules that can recharacterize proceeds as a dividend, and structure the transaction — pricing, share classes, and the corporate entities involved — to keep capital gains treatment available wherever your facts support it, rather than defaulting to the higher personal tax rate on dividends.
Where your shares qualify as Qualified Small Business Corporation shares, we structure the timing and mechanics of the transfer to preserve that exemption for you — and, where the structure allows, for other family members who hold shares — rather than letting an avoidable step disqualify it.
We look at what's sitting inside the company — retained earnings, passive investments, tangible property — and structure the transaction so that extracting or transferring that value doesn't trigger an avoidable extra layer of corporate or personal tax on top of the transfer itself.
A transfer to a related party draws more attention from the CRA than a sale to a stranger. We document every step — the valuation basis, the elections filed, the corporate resolutions — so the structure is defensible if it's ever reviewed, not just efficient on paper.
The goal isn't just minimizing tax on paper — it's making sure the plan still works the way you intended if the CRA ever looks at it.
If any of these describe your situation, it's worth a conversation before the next handshake — not after.
Your quarterly review flags the opportunity.
Succession planning is how you capture it.
A fixed, one-time engagement — not an open-ended bill.
Your preliminary succession plan includes a full cost-benefit analysis — your projected tax savings measured directly against the $30,000 investment — so you know the payback before you commit.
Without a coordinated structure in place, business owners transferring ownership often face:
These costs compound quickly, and many can't be undone once the transaction has closed. Succession planning stops them while there's still time to structure the deal correctly.
Clients choose our succession planning service because we provide:
This is not a simple share transfer you can do with a stock certificate and a handshake.
This is a tax-minimization structure engineered for your succession.
