Dentist Tax-Efficient Exit Strategies
Minimize taxes and maximize after-tax proceeds
Capital Gains Exemption - Critical Planning
Lifetime capital gains exemption (LCGE): $1,250,000 (2026) per individual on qualified small business corporation shares. Selling incorporated practice can save $300K+ in taxes vs asset sale. Requirements: shares held 24+ months, >90% of corporate assets used in active business, >50% of assets used actively for 24 months prior. Share sale vs asset sale difference: $500K practice sale generates $125K tax (share sale with LCGE) vs $250K+ tax (asset sale). Plan 2+ years ahead to qualify. Review CRA capital gains deduction details and consult with qualified tax advisors.
Tax Optimization Strategies
Share Sale Structure (Optimal)
Sell shares of professional corporation to buyer's corporation. Qualify for capital gains exemption: first $1.25M gain tax-free, remainder taxed at 50% inclusion (25-27% effective rate). Buyer gets higher tax basis. Clean transfer of all assets, contracts, liabilities. Requires 24-month planning to qualify. Can multiply exemption with spouse/family trust.
Best structure for most incorporated practices. $800K practice sale: ~$0-$50K tax vs $200K+ with asset sale. Requires advance planning and proper corporate structure.
Asset Sale Structure (Common but Less Efficient)
Sell individual assets (equipment, goodwill, patient records). Equipment sale: recapture depreciation as income (full tax). Goodwill: 50% capital gains inclusion (25-27% effective rate). No capital gains exemption available. Buyer prefers asset sale for better depreciation. Results in higher tax than share sale but simpler transaction.
Typical for non-incorporated practices or where share sale doesn't qualify. Higher tax cost but fewer legal complexities and buyer preference.
Split Sale & Installment Structure
Divide sale between current year and future years to spread tax burden. Take partial payment on closing, remainder as installments over 2-5 years. Qualify for capital gains reserves (defer up to 80% of gain over 4 years). Combined with LCGE provides maximum deferral and tax efficiency. Require security (promissory note, personal guarantee, collateral).
Spreads tax liability across multiple years, keeping you in lower brackets. Provides financing to buyer while optimizing your tax position.
Corporate Purification Strategy (Pre-Sale)
Remove excess cash and investments from professional corporation before sale to ensure >90% of assets are active business assets (required for LCGE). Pay dividends to holding company or yourself. Ensures LCGE qualification. Execute 6-12 months before sale. Coordinate with accountant to maintain qualification thresholds.
Critical for LCGE access. Excess cash/investments in practice corporation can disqualify capital gains exemption and cost $250K+ in additional taxes.
Tax Comparison - $850K Practice Sale
Share Sale (LCGE Applied)
Asset Sale (No LCGE)
Share sale with LCGE saves $212,500 in taxes - strategic structuring is essential
Post-Sale Estate Tax Protection
Practice sale proceeds remaining in corporation face eventual estate tax at death. Corporate-owned life insurance provides tax-free death benefit through Capital Dividend Account to cover estate taxes, preserving full asset value for heirs without forced liquidation.
Typical estate tax liability: $300K-$800K depending on corporate assets. Equitable Life's estate solutions and Manulife's permanent insurance specialize in estate tax planning for professional corporations. Implement 5-10 years pre-exit for optimal value accumulation.
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Optimize Your Practice Sale Taxes
Proper tax planning 2-5 years before sale can save $200K-$500K+ in taxes. The capital gains exemption alone provides $250K+ in tax savings if structured correctly.
We'll design a comprehensive tax-efficient exit strategy customized to your situation, timeline, and goals.