The purchase and sale of a business can be approached from many different points of view. When clients approach you to assist in an acquisition or sale of a business, many issues arise. How is the business valued? How will the transaction be financed? What accounting issues are raised? What are the tax considerations?

This course focuses on the income tax aspects of a purchase and sale of a business. The transactions are examined from both the buyer’s and seller’s point of view. Both asset transactions and share transactions are covered.

Many professional advisers will have roles in the purchase and sale transaction. The CGA’s role is much broader than just advising on tax considerations. You can assist with valuations and financing, prepare cash flow statements, and may otherwise find yourself as a general adviser to either the buyer or seller.

Your role will change from commencement of the transaction through to its completion. Prior to the transaction, you may help in determining financing and valuation issues. At the completion of the transaction, you may give input to the transaction documentation, tax indemnity clauses, and the implementation of merger accounting.

The course is comprised of eight self-study modules. There is also a quiz to test your understanding of the concepts of the course.

The course is based on the Income Tax Act as it stood at April 30, 2011. Any pending legislative amendments, pronouncements, and proposals announced up to then are incorporated into these materials. Also included are the measures affecting the topic announced in the March 22, 2011 federal budget and reintroduced in the June 6, 2011 budget.

While this course is self-contained, you are expected to have a current edition of the Income Tax Act (Act) or access to an up-to-date tax service. Quotes from the Act are in italics, but in general, the Act is paraphrased.

Module 1: Sale of shares and the capital gains deduction 
Share sale
Capital gains deduction
Stacking rule
Purification
Capital gains deduction — Other issues

Module 2: Sale of shares and tax deferral/planning opportunities
Share sale
Safe income
Interrelationship of capital gains deduction and safe income
Transfer of surplus assets and the capital gains deduction
Income tax deferral
Sale at a loss
Non-arm’s-length sales
Dividend stripping
Eligible small business corporations

Module 3: Mutual tax issues in a share purchase or sale
CCPC status
Dividend refund
Surplus assets
Paragraph 251(5)(b): Control
Deemed year end
Tax consequences of a short fiscal period
Prorated deductions

Module 4: Losses and Debt Forgiveness
Losses
Deemed realization of losses
Realization of accrued capital gains
Debt forgiveness
Planning summary

Module 5: Purchase and sale of shares — The buyer
Buyer’s and seller’s perspectives
Reasons for a share purchase
Purchase from a non-resident
Purchase of shareholder debt
Loss of tax shield
“Bump” on assets of acquired corporation

Module 6: Purchase and sale of assets
Allocation
Other factors to consider in allocation
Recapture
Income tax issues regarding specific assets
Depreciable property
Timing of disposition
Land and building
Non-arm’s-length transactions
Buyer consideration
Non-arm’s-length transfers — Losses
Non-depreciable capital property
Further avoidance rule
Technical Tax News No. 4, 9, and 22

Module 7: Reducing the purchase price
Retiring allowances
Non-competition payment
Earn-outs
Consulting fees
Zero percent interest

Module 8: Structuring the transaction
Interest expense
Preserving the purchase price
Non-taxable exchange
Exchangeable preferred share
General anti-avoidance rule (GAAR)

Quiz

J. Thomas McCallum, FCGA, CBV, has practised in the tax discipline since 1967. He is currently based in Ontario and restricts his practice to business valuation and income tax consulting. He has conducted over a thousand seminars throughout Canada, Barbados, and the United States. Tom has been the coordinator of CGA Magazine’s monthly “Tax Strategy” column since its inception over 20 years ago, and has authored several online courses and articles which can be found on the CGA PD Net. Active in the Certified General Accountants Association, Tom is a past president of CGA Ontario.