Calgary, Canada

Optimising Canadian tax in M&A

By Aasim Hirji and Doug McCartney, Moodys Private Client

The need for corporate and tax advisors to collaborate is clearly evident within the context of mergers and acquisitions. A common issue in M&A is whether the parties should complete a share sale or an asset sale. In a share sale, the amount of corporate and tax due diligence required by a purchaser is significantly higher than the due diligence typically undertaken in an asset purchase. Whereas in an asset sale a purchaser can choose the assets it wants to acquire and which liabilities it is willing to assume, thereby reducing its required due diligence.

When analysing an M&A transaction from a tax perspective, it is crucial for advisors to be aware of non-tax considerations when determining the best way to proceed. Such non-tax issues include, but aren’t limited to: real estate conveyancing costs, employment law matters, known and unknown corporate liabilities, and the ability to assign contracts or other assets.

Typically, from a tax perspective, purchasers prefer an asset sale while vendors prefer a share sale. An asset transaction is generally more advantageous to a purchaser as it will obtain the full cost basis in assets it acquires, which increases depreciable amounts and reduces future capital gains. For vendors, significantly different – and better – tax consequences arise in the context of a sale of shares compared to a sale of assets. These can be significant and include potential use of the lifetime capital gains exemption, the ability to claim reserves on amounts that may not be payable until a later year, and the ability to obtain further tax deferral if the consideration includes shares of a purchaser that is also a Canadian corporation.

This often leads to issues in M&A where one party prefers a share sale and the other prefers an asset sale. However, there are alternative structuring alternatives available when corporate and tax advisors collaborate, and these alternatives are beneficial to both vendors and purchasers. Such structures include “hybrid” transactions that realise some of the benefits of both an asset and a share transaction, as well as other alternatives that may lead to further tax deferrals. This type of transaction structuring can often satisfy both purchasers and vendors. When a collaborative corporate and tax strategy is used, advisors can offer more winwin strategies to their clients.


Aasim Hirji

Aasim Hirji

GGI member firm
Moodys Private Client
Fiduciary & Estate Planning, Law Firm Services, Tax
Calgary, Edmonton, Canada
T: +1 403 693 51 00
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Moodys Private Client has one focus – tax. They provide tax advice and planning for individuals with personal and business interests on both sides of the Canada-US border, no matter where they live in the world.

Aasim Hirji is Director, Canadian Tax Law at Moodys Tax. In a world fuelled by transactions in the field of tax law, Aasim stays focused on his values – building relationships based on understanding and trust. Having experience in both accounting and law firms, Aasim brings with him a well-rounded perspective on the industry he loves.
Doug McCartney

Doug McCartney

GGI member firm
Moodys Private Client
Fiduciary & Estate Planning, Law Firm Services, Tax
Calgary, Edmonton, Canada
T: +1 403 693 51 00
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W: moodysprivateclient.com

Doug McCartney is Director, Business Law at Moodys Private Client Law. With more than two decades of substantial experience in business law, Doug McCartney provides legal services in a practical and straightforward manner. He was called to the bar in both Alberta and Ontario. As an innovative legal thinker he handles M&A, corporate finance, strategic planning, venture capital, and private equity transactions.
 


Published: M & A Newsletter, No. 01 Autumn 2021 l Photo: Sergii Figurnyi - stock.adobe.com

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