Charm Sold: Investment & Tax Planning Guide

Question: How is my Charm business sale taxed in Canada?

Answer: Taxation depends on deal structure. Share sales may qualify for the Lifetime Capital Gains Exemption (LCGE) of $1,016,836 (2026) on qualified small business corporation shares—potentially making $1M+ tax-free. Asset sales are taxed differently: each asset class (goodwill, equipment, inventory) has specific treatment. Only 50% of capital gains are included in income, taxed at your marginal rate. For a significant transaction, the choice between share and asset sale can mean $200,000+ in tax differences.

Question: Do I qualify for the Lifetime Capital Gains Exemption on my Charm shares?

Answer: LCGE eligibility requires your shares to be "qualified small business corporation" (QSBC) shares. Tests include: (1) Canadian-controlled private corporation at sale; (2) 90%+ of assets used in active business in Canada at sale; (3) 50%+ active business asset test met for 24 months pre-sale; (4) You (or related person) held shares since issuance. Professional verification is essential—errors result in six-figure tax bills.

Question: How should I invest my Charm business sale proceeds?

Answer: Investment strategy depends on goals, timeline, and tax situation. First, reserve funds for tax payments (capital gains tax due April of following year). Consider: (1) Max out TFSA ($95,000 cumulative room if never contributed) and RRSP (if you have contribution room); (2) Decide on holding company vs. personal structure for remaining funds; (3) Build diversified portfolio appropriate for your risk tolerance and income needs. Avoid common mistakes: investing too quickly (emotional decisions), concentrating in any single investment, lending informally to family. For most business sellers, a balanced portfolio with 3-5 year withdrawal strategy allows time for markets to smooth short-term volatility.

Question: I received shares in the merged company—what's my tax situation?

Answer: Stock-for-stock mergers may qualify for tax-deferred treatment (Section 85 rollover) in Canada. If properly structured, you defer capital gains until you eventually sell the new shares—your tax cost basis carries over. Key considerations: (1) Verify the merger qualified for rollover treatment with your tax advisor; (2) Track your adjusted cost base carefully—it carries from your original Charm shares; (3) Develop a diversification plan for your TD Bank shares, considering lock-up periods and tax implications of selling; (4) If the merger included a cash component, that portion is immediately taxable. Even with rollover, you'll eventually pay tax when you sell—factor this into your diversification timeline.

Question: Should I keep my Charm proceeds in a corporation or take them personally?

Answer: This decision involves trade-offs. Corporate advantages: lower tax rates on investment income (creates deferral), creditor protection, estate planning flexibility, ability to income split with family shareholders. Personal advantages: simplicity, access to TFSA/RRSP contribution room, principal residence exemption for real estate purchases, no ongoing corporate maintenance costs. The "integration" principle means you'll eventually pay similar total tax either way—corporate structures primarily offer timing control and creditor protection. For significant proceeds, many business sellers use a hybrid: extract enough for immediate needs and registered account contributions, leave the balance in a holding company. Decision should be made with tax and legal professionals.

Question: What estate planning changes should I make after selling Charm?

Answer: A major liquidity event requires immediate estate planning updates. Within 90 days: (1) Update your will to reflect new liquid assets—trusts may now be appropriate for wealth this significant; (2) Review all beneficiary designations (RRSP, TFSA, insurance, corporate accounts); (3) Update powers of attorney to reflect new financial complexity; (4) Review insurance needs—you may need less life insurance but more liability coverage; (5) If you established a holding company, ensure share structure supports estate planning goals (estate freeze, family trusts). For families with significant wealth, consider family governance discussions—sudden wealth creates dynamics that are better addressed proactively.