Introduction

The sale of a medical practice is one of the most significant financial events in a physician's career. Whether the sale is a planned retirement transition or an unexpected opportunity, the tax implications of the sale — structured correctly — can dramatically affect the after-tax proceeds. Structured incorrectly, the same sale can generate a much larger tax bill than necessary.

Share Sale vs. Asset Sale

The fundamental structural choice in any practice sale is whether the transaction is a sale of shares (the buyer purchases the shares of the professional corporation) or a sale of assets (the buyer purchases the practice's assets — equipment, goodwill, patient list, the right to operate).

Share sale (from the seller's perspective):

The seller sells the shares of their MPC to the buyer. The proceeds are personal income of the selling physician (a capital gain at the personal level). Where the shares qualify as QSBC shares and the physician has not previously used their lifetime capital gains exemption (LCGE), the gain is sheltered up to the 2026 LCGE limit (approximately $1.25 million, indexed annually).

For a physician with a practice worth $1–2 million, the LCGE can eliminate most or all of the capital gains tax on the sale. This is one of the most powerful tax planning tools available in a practice sale.

Asset sale (from the seller's perspective):

The professional corporation sells its assets — equipment, goodwill, patient list. The proceeds are received by the corporation. Corporate taxes are paid on the gain at the corporate level. The remaining after-tax proceeds are then distributed to the physician personally — as dividends or through the capital dividend account — with additional personal tax at that stage.

The share sale is generally more tax-efficient for the seller because the LCGE applies at the personal level. The asset sale results in taxation at both the corporate and personal levels.

Why Buyers Often Prefer Asset Sales

Buyers generally prefer asset sales because they obtain a stepped-up cost base for all assets acquired — including goodwill — which generates future CCA deductions and reduces the buyer's after-tax cost of the acquisition. In a share sale, the buyer inherits the seller's tax history, including low-ACB assets, potential tax liabilities, and historical compliance risk.

This structural preference mismatch — seller preferring a share sale, buyer preferring an asset sale — is a standard negotiation dynamic in practice transactions. The resolution often involves a price adjustment: the buyer pays more in a share sale than they would in an asset sale, reflecting the tax disadvantage they bear.

Goodwill in a Medical Practice Sale

Goodwill in a medical practice sale represents the value of the practice beyond its tangible assets — the patient base, referral relationships, and the expected continuation of practice revenue. It is often the largest component of a practice's value.

For a selling MPC, goodwill has a cost base in Class 14.1 equal to the original amount paid for any acquired goodwill (or zero if the practice was built organically). A sale of goodwill above its cost base generates recaptured CCA (if any) and a capital gain.

In a share sale structure, the goodwill stays inside the MPC — the seller is selling shares, not assets. The capital gain on the sale of shares subsumes the goodwill value.

QSBC Qualification: Is the Practice Ready?

To access the LCGE on a share sale, the shares must qualify as shares of a Qualifying Small Business Corporation (QSBC) at the time of sale. The requirements include:

The corporation must be a CCPC throughout the 24 months before the sale

More than 50% of the fair market value of the corporation's assets must be used in active business throughout the 24 months before the sale

At the time of sale, 90% of the fair market value must be in assets used in active business

The passive income that has accumulated inside many physicians' professional corporations — investment portfolios, cash not deployed in the practice — can disqualify shares from QSBC status if it represents more than 50% of the corporation's asset value at the relevant time.

This is the purification problem — cleaning up the balance sheet before a sale to ensure QSBC qualification. A physician who has accumulated significant passive investments inside their MPC and is planning a sale within the next few years should begin reviewing purification options well in advance.

When to Speak With a CPA

Practice sale planning should begin at least two years before the anticipated sale — ideally earlier — to ensure QSBC qualification, identify and address purification issues, and negotiate the sale structure from a position of tax preparedness. A CPA engaged only after a letter of intent is signed has far less ability to optimise the outcome.

Rotaru CPA works with physicians and incorporated professionals on practice sale planning and transaction structuring. Book a consultation to begin the planning process.