The 2016 Federal Budget released in March contained proposed
changes that may impact selling your business in the near future.
The proposed changes relate to the current Eligible Capital
Property ("ECP") rules and may result in less favourable
tax treatment for business owners who sell their businesses after
2016.
What is ECP?
Generally, ECP includes various intangible assets relating to a
business, with goodwill and customer lists being common
examples.
What happens when ECP is sold?
When a Canadian-controlled private corporation
("CCPC") sells ECP, its effective corporate tax rate on
the sales proceeds can be as low as 7% (for an Alberta
corporation). Generally, 50 percent of the gain on the sale of ECP
is subject to tax as active business income and the remaining 50
percent is included in the corporation's Capital Dividend
Account ("CDA") from which tax-free capital dividends can
be paid. This is currently more favourable than the result under
the
