By – Sankalp (Sunny) Jaggi, CPA, CA, MTax, CFF
Two business owners sold nearly identical companies for $3 million each. One walked away with most of that money. The other handed over $800,000 to CRA. Same sale price, same type of business — $800,000 apart.
The difference had nothing to do with the deal itself. It came down to five planning mistakes — every single one of them avoidable. And in one case I worked on personally, the mistakes didn’t just cost money. The entire deal collapsed.
If you’re a business owner thinking about selling in the next few years, this is the breakdown you need before anything else happens.
The Setup
Let’s call the first owner David. He built his company over 20 years in Ontario. A private corporation, profitable, well-run. He got an offer for $3 million, brought in his accountant and a broker, and closed the deal in about 90 days.
What nobody did — not the accountant, not the broker, not David himself — was sit down and figure out how much of that $3 million David would actually keep after tax. He found out what he owed after he’d already signed.
That’s where the problems started.
Mistake #1: Tax Was an Afterthought
This one didn’t cost David a specific dollar amount, but it caused every other mistake on the list.
David focused on finding a buyer, negotiating the price, and getting the deal done. Tax was the last item on the list — something he assumed his accountant would sort out after closing.
The problem is that the most significant tax savings in a business sale come from planning done before the deal. In many cases, a year or two before. Once the documents are signed, most of those options disappear.
What should have happened: someone should have sat down with David before he went to market and modelled out his base case (what he’d owe with no planning), then walked him through three or four strategies to reduce that number — with specific dollar savings attached to each one.
That conversation never happened.
Mistake #2: He Missed the $1.25M Tax-Free Rule — $334K Lost
When you sell your business in Canada, there’s a rule that lets you sell your shares and pay zero tax on the first $1.25 million of your gain. It’s called the Lifetime Capital Gains Exemption, and on a $3 million sale, the savings come out to roughly $334,000.
David’s company was exactly the type of business that qualifies. But there was a problem sitting inside the corporation: about $450,000 in GICs — his rainy day fund.
To qualify for this exemption, at least 90% of what’s inside your company has to be active business assets — equipment, receivables, inventory, things the business actually uses. David’s GICs pushed the company below that threshold. CRA denied the exemption.
The fix would have been straightforward. You move those investments out of the operating company into a separate holding company before the sale. It’s called purification, and it takes a few weeks of paperwork when done early.
But here’s the catch: if you wait until a buyer is already at the table, CRA’s anti-avoidance rules make this kind of cleanup much harder. Moves that would have been simple two years earlier become expensive, complicated, or impossible once a deal is in motion.
Running total: $334,000 lost.
Mistake #3: He Didn't Use His Family's Exemptions — Could Have Been $0
That $1.25 million exemption isn’t limited to the business owner. David’s wife had her own exemption. So did his adult son.
Three people, three exemptions: $1.25 million times three equals $3.75 million that could be sheltered from tax. David’s entire gain was $3 million — fully covered.
With the right structure in place — an estate freeze and a family trust — each family member claims their own exemption when the business is sold. The tax bill drops from $800,000 to close to zero.
How it works in plain language: David locks in the value of his shares at today’s price (that’s the estate freeze). New shares get issued through a family trust, with his wife and adult son as beneficiaries. When the business eventually sells, the gain flows through the trust and each person uses their own exemption.
But this kind of structure needs to be set up 12 to 24 months before a sale. It requires proper valuations, a properly drafted trust, and time for everything to be in place. You cannot do it at the last minute.
David didn’t have that time. Because nobody planned ahead.
Running total: The full $800,000. Every dollar was avoidable.
Mistake #4: The Deal That Died
David lost $800,000. That’s devastating. But I want to tell you about a deal that was worse — because this one didn’t just cost money. The deal died entirely.
I was on the buy side of this transaction. The seller had a company with specialized licences — the kind you can’t transfer or sell separately. If the buyer wanted the business, they had to purchase the shares. No other option.
When we looked inside the company, it wasn’t just an operating business. It held real estate, investment portfolios, life insurance policies, and shares of another company — which itself owned more real estate. All of that non-business property was sitting inside the company the buyer had to purchase.
The tax cost of extracting those assets — getting them out either before or after the deal — was enormous. Our team ran the analysis and the numbers didn’t work.
We walked away. The deal was dead.
Not because the business wasn’t good. Not because the price was wrong. Because the company wasn’t ready to be sold. Nobody had cleaned it up. And the seller didn’t find out until the buyer’s team did.
Years of building a business. A willing buyer at a fair price. And the deal fell apart entirely because of tax.
Mistake #5: Right People, Wrong Roles
This last mistake isn’t a dollar amount. It’s the deeper lesson behind all of this.
On a separate $10 million deal, the seller had a large law firm handling the tax side. Technically competent people. But the client was completely lost — drowning in jargon about sections and subsections, with no idea how much money he’d actually keep or what his options were.
When I got involved, the first conversation was simple: here’s how much money will be in your pocket after tax. Here are your planning options. Here’s what each one saves you. And here’s how we get there.
The lawyer stayed on the deal and handled the legal work — share purchase agreement, closing documents, everything they’re great at. But they weren’t leading tax strategy anymore.
The mistake isn’t having bad people on your team. David’s accountant was excellent at tax returns. The lawyer on the $10 million deal was excellent at law. The mistake is who’s leading what. Tax compliance and deal tax advisory are different skill sets. Corporate law and deal tax strategy are different jobs.
You need your accountant on the deal — they have the history, they know the company, and you need them for diligence and the transition to the buyer. But you also need someone whose only job is to figure out how much you keep and how to keep more.
What to Do If You're Selling in 1–3 Years
Model your scenarios now. Sit down with someone who understands deal tax and figure out your base case — what you’d owe with no planning. Then identify the opportunities to bring that number down. Know your numbers before a buyer shows up.
Clean up your company now. If you’ve got investments, personal assets, real estate, or anything else sitting inside your operating company that doesn’t need to be there, start moving it out. Not when a buyer appears. Now. The rules get much tighter once a deal is in motion.
Get the right people in the right roles. Your accountant should be on the team. But you also need a tax advisor who does deals and a lawyer who does deals. And they need to talk to each other.
Get the Pre-Sale Tax Checklist
I put together a Pre-Sale Tax Checklist that walks you through everything — the scenarios to model, the cleanup steps, the questions to ask your team. It’s the same framework I use with clients before every deal.
This post is based on Episode 10 of The Advisors Table Podcast. Watch the full video below:
Related Videos:
- Your Accountant Can’t Protect You Here (Coming Soon)
- Buyers Run This Check Before Every Deal (Coming Soon)
- Do This 2 Years Before You Sell (Coming Soon)
Sunny Jaggi is a CPA, CA, MTax, CFF, and Tax Principal at Cedar Consulting Group. He helps Canadian business owners and high-net-worth families navigate complex tax decisions — especially business sales, reorganizations, and estate planning.
The information in this article is for general educational purposes only and does not constitute legal or tax advice. Consult a qualified professional for advice specific to your situation.
