Retirement Planning: Key Considerations When Selling Company Shares

For business owners approaching retirement, selling company shares represents one of life's most significant financial transitions. The decisions you make during this process can have profound implications for your retirement lifestyle, tax obligations, and the legacy you leave behind. This comprehensive guide explores the crucial wealth planning and tax considerations to ensure you maximize the value of your life's work while minimizing unnecessary tax burdens.

Retirement Planning: Key Considerations When Selling Company Shares (Frequently Asked Questions)

• When should I start planning for the sale of my company?
   

  Begin planning 3-5 years before your intended retirement date to maximize opportunities and value. This timeline allows you to "purify" your corporation by removing excess passive assets to maintain Qualified Small Business Corporation (QSBC) status, implement strategies to multiply the Lifetime Capital Gains Exemption by introducing family members as shareholders through a trust, build relationships with potential buyers, optimize your corporate structure for tax efficiency, and address operational issues that might affect valuation. Starting early provides flexibility to choose optimal timing based on market conditions, tax law changes, and personal circumstances. Rushed sales often result in lower valuations and missed tax planning opportunities that could save hundreds of thousands of dollars.

• How do I create financial plan when selling my private company shares, and do I really need a financial planner?
   

  Creating a retirement plan when selling your business involves complex intersections of tax optimization, cash flow planning, benefits preservation, investment strategy, estate planning, and risk management - making a financial planner not just helpful but essential to maximizing wealth and avoiding costly mistakes. A qualified financial planner acts as your strategic quarterback, coordinating with accountants and lawyers, modeling complex "what-if" scenarios, and identifying opportunities you'd miss, such as LCGE multiplication strategies, QSBC purification techniques, or insurance strategies that save hundreds of thousands in estate taxes. Without professional guidance, business owners commonly miss the LCGE due to excess passive assets (costing $250,000+ in taxes), structure deals poorly, lose years of OAS benefits, or leave massive estate tax bills. Start 3-5 years before retirement with a planner experienced in business succession who takes a team approach - the fees paid are typically a fraction of the taxes saved and opportunities captured, making professional planning an investment that pays for itself many times over.

• How can I minimize taxes when selling my business?
   

  Multiple strategies can significantly reduce your tax burden: maximize the Lifetime Capital Gains Exemption by ensuring QSBC qualification (90% active assets at sale, 50% for prior 24 months) and multiplying it through family member ownership; manage timing through capital gains reserves to spread gains over 5-10 years and optimize tax brackets; leverage new rules like Employee Ownership Trusts (up to $10M tax-exempt until December 2026) or favorable intergenerational transfer provisions; and implement post-sale strategies including TFSA maximization, insurance-based estate planning, and holding companies for investment income. Remember that Alternative Minimum Tax (AMT) may apply on large gains, making it crucial to model all scenarios with your accountant before proceeding with any sale structure.

• How will selling my business affect my government benefits in retirement?
   

  A large capital gain can devastate income-tested benefits, particularly Old Age Security (OAS), which begins clawing back at 15% for income above $93,454 (2025) and can be completely eliminated at high income levels - impacts that can last multiple years if using capital gains reserves. Strategies to preserve benefits include structuring sales to minimize income spikes through installments or reserves, favoring capital gains over dividend income post-sale (dividends are "grossed up" by 38%, inflating net income), maximizing TFSA usage for tax-free withdrawals, using T-Class mutual funds for tax-efficient cash flow, leveraging permanent life insurance for tax-deferred accumulation, and holding investments in a corporation to defer personal taxation. Careful modeling of the multi-year impact on benefits is essential, as sometimes accepting a slightly lower sale price with better payment terms results in higher after-tax, after-benefit wealth.

• What happens to my company shares if I die before selling?
   

  At death, Canada's deemed disposition rules treat you as having sold all capital property at fair market value, triggering potentially massive capital gains tax on unrealized appreciation - forcing your estate to pay taxes without an actual sale occurring and potentially requiring fire-sale liquidation of company shares or other assets. Protection strategies include life insurance (particularly joint last-to-die policies) to provide tax liquidity, estate freezes to lock in current values while pushing growth to the next generation, funded shareholders' agreements for partner buyouts, multiple wills to potentially avoid probate on private company shares, and family trust structures for post-death flexibility. Consider succession options like spousal rollovers to defer taxes, gradual lifetime transfers to children using new intergenerational business transfer rules, and ensure your executor has appropriate business expertise - updating your estate plan whenever your business value changes significantly.

Do you have any other questions? Visit our general FAQ page.

Understanding the Lifetime Capital Gains Exemption (LCGE)

One of the most valuable tax planning tools available to Canadian business owners is the Lifetime Capital Gains Exemption. Currently set at $1,016,836 (with a proposed increase to $1,250,000), this exemption can shield a significant portion of your capital gains from taxation when selling shares in a qualified small business corporation (QSBC).

Qualifying for QSBC Status

To leverage this powerful exemption, your corporation must meet specific criteria:

• The 90% Rule: In the year of sale, at least 90% of your corporation's assets must be actively used in the business
• The 24-Month Rule: For the 24 months preceding the sale, at least 50% of assets must have been used for active business purposes

Many business owners inadvertently jeopardize their QSBC status by accumulating passive investments within their operating company. Regular "purification" strategies, such as transferring excess passive assets to a holding company, can help maintain eligibility.

Multiplying the Exemption

Each individual shareholder can claim their own LCGE, creating opportunities for substantial tax savings. By introducing family members as shareholders, often through a carefully structured family trust, you can potentially multiply the available exemption. For instance, if you and your spouse each own shares, you could collectively shelter over $2 million in capital gains from taxation.

However, exercise caution when involving family members with U.S. connections, as this can introduce significant tax complexity.

Navigating Buyer Preferences

While sellers typically prefer share sales to utilize the LCGE, buyers often favor asset purchases to limit liability and maximize future tax deductions. This fundamental conflict requires careful negotiation and may impact your ability to use the exemption. Understanding this dynamic early in the process allows for better planning and potentially creative deal structures that satisfy both parties.

Strategic Tax Planning for Sale Proceeds

The sale of your business will likely generate substantial proceeds requiring thoughtful tax planning to preserve your wealth.

Managing the Tax Impact

Several strategies can help minimize the immediate tax burden:

Capital Gains Reserve: If you're not receiving all sale proceeds immediately, you may be able to spread the capital gain recognition over five years (or ten years when selling to a child residing in Canada). This strategy can help manage your tax brackets and potentially reduce overall tax liability.

Alternative Minimum Tax (AMT) Considerations: Large capital gains can trigger AMT, effectively accelerating tax payments. Early consultation with tax professionals is crucial to understand and plan for potential AMT implications.

Protecting Government Benefits

A significant capital gain can dramatically impact your eligibility for income-tested benefits, particularly Old Age Security (OAS). With OAS clawbacks beginning at net income levels around $93,454 (2025), a large one-time gain could eliminate benefits for several years.

Strategic income management becomes essential:

• Favour Capital Gains Over Dividends: Canadian dividends are "grossed up" for tax purposes, inflating your net income more than capital gains
• Maximize TFSA Contributions: All TFSA withdrawals are tax-free and don't affect net income calculations
• Consider T-Class Mutual Funds: These investments provide tax-efficient cash flow through return of capital distributions
• Explore Permanent Life Insurance: For those with significant non-registered assets, permanent life insurance can provide tax-deferred growth and tax-free access to funds through policy loans

Advanced Planning with Holding Corporations

For those with substantial investment assets post-sale, transferring investments to a holding corporation can defer personal taxation until funds are needed. While this strategy involves additional complexity and costs, it can provide significant flexibility in managing personal net income levels.

Planning for the Tax Bill at Death

Canada's deemed disposition rules mean that upon death, all capital property is considered sold at fair market value, potentially triggering substantial tax liabilities. Without proper planning, your estate might be forced to sell cherished assets like vacation properties or remaining business interests to pay these taxes.

Life insurance, particularly joint last-to-die policies, can provide cost-effective liquidity to cover these obligations while preserving assets for the next generation.

Selecting the Right Personal Representatives

Business owners should choose executors with appropriate business acumen to manage complex estates effectively. The skills required to wind down business interests or manage sophisticated investment portfolios differ significantly from those needed for simpler estates.

Shareholders' Agreements and Succession Planning

If you're not selling your entire business interest, comprehensive shareholders' agreements become even more critical. These agreements should address:

• Buyout provisions for death, disability, or relationship breakdown
• Valuation methodologies
• Funding mechanisms (often through insurance)
• Transfer restrictions and rights of first refusal

For those planning intergenerational transfers, estate freezes can lock in current values while allowing future growth to accrue to the next generation, potentially multiplying access to the LCGE for future sales.

New Opportunities in Business Succession

Recent legislative changes have created additional options for business succession:

Intergenerational Business Transfers: New rules facilitate genuine transfers to children or grandchildren, potentially offering similar tax treatment to arm's-length sales.

Employee Ownership Trusts (EOTs): For qualifying transfers between January 1, 2024, and December 31, 2026, the first $10 million in capital gains can be completely tax-exempt, providing an attractive alternative succession option for business owners who want to reward loyal employees.

The Critical Role of Professional Advice

The key to success lies in having professionals work together to create a cohesive, comprehensive financial plan for you. Your financial planner typically acts as the quarterback, coordinating with tax and legal specialists to ensure all aspects of your plan work in harmony. Early engagement with this team, ideally years before your planned retirement, provides the greatest opportunity for tax optimization and smooth succession planning.

Conclusion

Selling your company shares as you approach retirement represents both an ending and a beginning. It's the culmination of years of hard work and the gateway to a new phase of life. By understanding and implementing these key considerations, from maximizing the Lifetime Capital Gains Exemption to sophisticated estate planning strategies, you can ensure that the wealth you've created through your business continues to provide security and opportunity for you and your family for generations to come.

The strategies outlined here represent general considerations, and your specific situation will require customized planning. Start early, assemble the right team of advisors, and approach this transition with the same strategic thinking that made your business successful. Your future retired self will thank you for the careful planning and attention to detail you invest today.

Our financial planning team provides clients with the Private Wealth Planning Experience to ensure they have access to an entire team of experts. 

If you have any questions about what you read in this article, please don’t hesitate to reach out to the author. 

Coby Blystone is a Financial Consultant with Bay & Associates – IG Private Wealth Management. He helps clients convert their career success into financial independence. He currently holds the CERTIFIED FINANCIAL PLANNER designation®, Chartered Life Underwriter®, and is a Trust and Estate Practitioner (TEP) candidate. You’ve found the right financial planner near you. 

IG Wealth Management Inc.
Mutual Fund Division

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Coby Blystone is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Advisor. Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial services firm). Insurance license sponsored by The Canada Life Assurance Company (outside of Québec).