Selling your dental practice is a defining financial decision. Whether you structure the transaction as a share sale or an asset sale can significantly affect your after-tax proceeds, even when both offers have the same purchase price.
Goodwill reflects the value of factors such as patient relationships, reputation, location and future earning potential. It is not an alternative to an asset sale. Instead, goodwill is one of the assets that may be sold when a corporation sells its dental practice. The main decision is whether to sell the corporation’s shares or have the corporation sell its individual assets.
Share Sale vs. Asset Sale: What’s the Difference?
In a share sale, you sell shares of your dental professional corporation. The corporation continues to own its assets and remains responsible for its existing liabilities, while the sale proceeds go to the shareholder selling the shares.
In an asset sale, your corporation sells individual assets, such as equipment, leasehold improvements, supplies and goodwill, to the buyer. The corporation receives the proceeds and remains under your ownership after closing unless you subsequently restructure or wind it up.
Professional corporation ownership rules can also influence the decision. Requirements vary by province and may restrict who can own voting or other shares. If a buyer is not eligible to acquire the shares, an asset sale may be more practical. Confirm the applicable provincial rules before choosing a structure.
When a Share Sale May Be Advantageous
For a seller who owns shares personally, a share sale generally results in a capital gain or loss. If the shares qualify as qualified small business corporation shares (QSBCS), the seller may be eligible to claim the Lifetime Capital Gains Exemption (LCGE), subject to the applicable requirements and any remaining exemption.
The LCGE limit is $1,275,000 for 2026, following the increase and resumed inflation indexation. The limit applies to eligible capital gains, not automatically to the entire sale price. Only eligible individuals can claim the personal capital gains deduction; a holding company cannot claim an individual’s LCGE on its own share sale.
QSBCS eligibility includes several important tests:
•At the time of sale: The corporation must meet the small business corporation asset test, generally requiring at least 90% of the fair market value of its assets to be used in an active business carried on primarily in Canada, subject to the statutory rules.
•During the preceding 24 months: More than 50% of the fair market value of the corporation’s assets must generally have met the relevant active-business asset test.
•Ownership history: Throughout the applicable 24-month period, the shares must have been owned only by the seller or certain permitted related persons or partnerships under the tax rules.
Surplus cash, investments and other non-business assets can affect eligibility. Purification involves addressing these assets before a sale, but it is not automatically tax-free and may require substantial advance planning.
Buyers may prefer an asset sale because they can select the assets they want and generally obtain a new tax cost for acquired assets. In a share sale, the buyer inherits the corporation’s existing liabilities and tax history and generally does not receive a corresponding increase in the tax cost of the underlying assets.
Dental Practice Goodwill Tax: How an Asset Sale Is Taxed
In an asset sale, the tax consequences depend on the type of asset and are initially calculated at the corporate level.
Goodwill. Goodwill acquired after 2016 generally falls under capital cost allowance (CCA) Class 14.1, which has a 5% declining-balance CCA rate. Internally generated goodwill may have little or no tax cost, but its sale proceeds do not automatically receive the same treatment as proceeds from a share sale. The Class 14.1 rules determine the consequences, which may include recapture or a capital gain depending on the circumstances.
Equipment and leasehold improvements. These assets may have been depreciated through CCA. When proceeds from depreciable property exceed its undepreciated capital cost (UCC), CCA recapture may arise, subject to the applicable class rules. Recapture is included in income. A separate capital gain may also arise if proceeds exceed the property’s original capital cost.
Corporate and shareholder tax. The corporation generally pays tax on taxable income and gains arising from the asset sale. If the remaining proceeds are distributed to the shareholder, additional personal tax may apply. Certain non-taxable amounts from corporate capital gains may contribute to the capital dividend account (CDA), potentially allowing a private corporation to pay a tax-free capital dividend to eligible Canadian-resident shareholders. The CDA balance must be calculated correctly, and the required election must be filed.
When an Asset Sale May Be Preferable
An asset sale may be appropriate when the buyer cannot acquire the professional corporation’s shares, the seller’s shares do not qualify for the LCGE, or other commercial considerations favour selling selected assets.
Buyers often prefer asset purchases because they can choose which assets and liabilities to acquire and generally obtain tax deductions through CCA on eligible acquired assets. Sellers may prefer share sales because of the potential for capital gains treatment and the LCGE.
Neither structure is automatically better. The seller’s tax position, the buyer’s financing and liability concerns, the corporation’s asset mix and the negotiated purchase price all influence the outcome.
In an asset sale, the purchase agreement should allocate the price reasonably among goodwill, equipment, leasehold improvements, inventory and other assets. Buyers may prefer allocations that provide greater future tax deductions, while sellers may favour allocations that reduce recapture or produce more favourable capital-gains treatment. The allocation should reflect supportable values and be reviewed by the parties’ tax advisers.
Canadian Tax Figures and Planning Considerations
Two figures are particularly relevant when evaluating a dental practice sale:
•Capital gains inclusion rate: 50%. The proposed increase to two-thirds was cancelled in 2025. Under the current general rule, half of a capital gain is included in taxable income, subject to applicable exceptions.
•LCGE limit: $1,275,000 for 2026. This applies to qualifying capital gains and remains subject to eligibility, the seller’s available exemption and applicable tax rules.
The inclusion rate is not the actual tax rate. The tax payable depends on the amount included in income, the taxpayer’s marginal rate and other applicable rules. Corporate asset sales can also produce different results from personal share sales.
For current details, consult the Canada Revenue Agency’s guidance on qualified small business corporation shares and its guidance on selling a business.
Plan Your Structure Before You Plan Your Price
Choosing the right structure for selling a dental practice requires more than comparing headline offers. Your buyer, professional corporation structure, asset mix, available LCGE, corporate investments and transaction timing can all affect the amount you ultimately retain.
That is why practice-sale planning should begin well before an offer is on the table. Purification, eligibility reviews and negotiations over asset allocation can require planning.
At Dental Tax, we help dental professionals with practice valuation, tax planning and transition strategies. Comparing the potential after-tax results of a share sale and an asset sale can help you assess an offer based on what you may actually keep, rather than just the purchase price. Schedule a free call if you’re planning to sell your practice.
