Presentation – Factor tax when selling a business
To make it easier for you to prepare materials for clients, we’ve developed these slide selections on the topic of ways to minimize tax when selling a business. We know you’ll want to customize them and add elements specific to your client, so we’re providing a Word file to make that easier.
Enjoy, and we hope this offering helps enhance your client meetings.
SLIDE 1
Planning to sell your business?
SLIDE 2
Shares or Assets?
SLIDE 3
The main decision when selling a business is usually whether to sell the shares or the assets.
Or a combination of both.
SLIDE 4
In general, it’s an advantage for a vendor to sell the shares.
SLIDE 5
A key benefit of selling shares is the potential for each share seller to claim a capital gains tax exemption, especially if the shareholders are related.
Proper tax planning can result in six or eight capital gains exemptions for family members.
SLIDE 6
Conditions
SLIDE 7
#1
Must have held them for at least 24 months prior to sale (some exceptions).
SLIDE 8
#2
Fair-market value is paid for the shares.
SLIDE 9
#3
50% or more of the firm’s assets have to relate to its active business for two years leading up to the sale.
It goes up to 90% on the day of the sale.
SLIDE 10
Assets benefit the buyer
SLIDE 11
A seller is likely to get a higher offer in an asset sale.
SLIDE 12
Why?
Because purchasers prefer to buy assets because they can write them off.
SLIDE 13
When they purchase shares they’re actually buying the history of the corporation, including all its legal and employee issues.
SLIDE 14
Before considering this option, be aware the sale of assets could result in a considerable tax hit due to recaptured depreciation.
SLIDE 15
A good solution is to negotiate a transaction that brings sellers a certain amount of the sale price in the first year and spreads the rest over a multi-year period.
SLIDE 16
That reduces how much capital gains they have to use each year and reduces the minimum tax.
SLIDE 17
Some sellers opt for a combination share and asset sale.
SLIDE 18
For example one Manitoba entrepreneur sold a professional services firm several years ago in three parts: two were asset sales (including a client list), and the third was a share sale.
SLIDE 19
The share sale happened because the suitor was buying a portion of the business that operated out of a shopping mall and didn’t want to ask the landlord permission to transfer the lease.
Controlling the company helped her avoid that confrontation.
SLIDE 20
It takes time to figure out the right transactional structure.
SLIDE 21
A couple percentage points in the tax rate can make a big difference in how much money they can get.
SLIDE 22
So give your tax advisors as much time as possible to help plan the deal.
Some can pull it off in a week but it’s best to plan two years out.
SLIDE 23
Giving them time can mean a significant cut in your tax bill.