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Hi,
Me, my sister and mother own a small commercial building in a corporation.
We want to sell the property. Should we make it a share or asset sale?
The intention is to use the money from the sale to purchase a house that will be my mothers and sisters primary residence.
Me and my sister have a good income my mother has a very low income.
What is the most tax efficient way to achieve this? Thanks in advance!
Hi,
The company should sell the commercial building (i.e. asset sale). The alternative, a share sale, will result in a large capital gain, because the cost basis of your shares in the company’s capital stock is very low. However, the cost basis in the land and building owned by your company is much higher.
Once your company sells the building, it should file an election form with the CRA to allow it to pay a capital dividend to the shareholders. Capital dividends can be paid to shareholders from the capital dividend account of the company on a tax-free basis. The capital dividend account will increase by an amount equal to 1/2 of the capital gain realized upon sale of the commercial building. Use the proceeds from the capital dividend to pay for your mother’s new home.
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