We maximized the after-tax proceeds from the sale of a business

Situation

Our goal is to see beyond your numbers and assist in every aspect of your success, including strategic tax planning solutions when it comes time to sell your business. In this case, our client owned a successful manufacturing business which he wanted to sell. He had a number of challenges, including having no succession plan in place, no children involved in the business, and having to deal with five other shareholders of different ages, each with varying objectives, including one who was a non-resident of Canada.

A further challenge was to ensure that the capital gains exemption could be utilized by the Canadian residents and that the company shares would qualify as "qualified small business corporation" shares under the Income Tax Act.

Solution

We approached the shareholders with a potential purchaser to purchase the shares of the company for approximately $20,000,000. Our objective was to maximize the after-tax proceeds from the sale of the shares of the company. We implemented a tax reorganization, which included setting up holding companies, paying "tax–free" dividends, and making various tax deferred elections to maximize the net after-tax proceeds for the shareholders.

Thanks to our efforts, the immediate income tax liability to the shareholders was reduced by 66% and the immediate income tax liability to the shareholders was reduced from 23% of the total purchase price to 8%. We also successfully deferred approximately $2.6m of personal income taxes indefinitely. If careful and insightful tax planning had not been undertaken by Cunningham, the shareholders would have realized significantly less net proceeds.