A vendor’s capital gain tax is a material consideration in private company M&A and often in reorganization and restructuring planning.
Tax deferred rollovers are an essential tool that can be the difference between a deal that makes sense and the vendor walking away. For example, an 85.1 rollover permits the shareholder of a Canadian private company, under certain conditions, to sell their shares in exchange for shares of the purchaser and to not recognize any taxable income until the newly received shares are sold in the future. In the absence of the rollover, the vendor would have received the purchaser’s shares as consideration, triggering taxable income, but then would have no cash with which to pay the tax that is due.
HERE is a handy presentation prepared by Faskens summarizing the available rollovers in Canada. And HERE is another with a bit more detail from Felesky Flynn. Obviously you should seek tax advice before you undertake a rollover transaction; the consequences can be significant if improperly done.
Posted by Scott Sinclair, Range Advisors
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