What 'three years of statements' actually means
Buyers and their lenders want your financial statements or tax returns (T2 corporate returns, or T1 with a schedule if you operate as a sole proprietor) for the three most recently completed fiscal years, plus a year-to-date statement for the current year. If your bookkeeping is cash-basis or informal, have your accountant prepare a clean set before you list — a business shown through disorganized numbers is discounted regardless of how well it actually performs.
Presenting seller's discretionary earnings honestly
Seller's discretionary earnings (SDE) is net income with your own salary and benefits, interest, depreciation and amortisation, and genuine one-time costs added back — it represents what a new owner-operator could expect to earn before financing. Buyers will reconstruct this themselves from your statements; the credibility of your listing depends on your add-backs matching what a buyer's own review finds. Only add back expenses you can point to in the actual financial statements (a specific vehicle lease, family members on payroll, personal travel booked to the business) — inflating SDE with unsupported add-backs is the fastest way to lose a buyer's trust partway through diligence.
Do this reconstruction for each of the three years, not just the most recent one. A buyer values a stable three-year trend more than a single strong year, and a declining trend dressed up with one good year invites a lower offer, not a higher one.
Reconciling to what the government already has
Buyers who are serious will cross-check the sales figures you present against your GST filings and, where relevant, bank deposit records. Make sure your own numbers tie out before a buyer's accountant finds a gap. If cash sales were historically under-reported, disclose this to your own accountant and lawyer before listing — it is a legal and tax exposure issue, not just a negotiating one, and it will surface in due diligence either way.
PST on the sale of your business assets
In an asset sale, provincial sales tax applies to the taxable business assets you are transferring: affixed machinery, business equipment, computer hardware, shelving and display equipment, and software. It does not apply to inventory sold for resale (when the buyer provides a PST number or exemption certificate), real property, goodwill, accounts receivable, franchise fees, or shares. If you are registered to collect PST, you are responsible for collecting and remitting it on the taxable assets in the sale.
Apply for a PST clearance certificate before closing. It confirms to the buyer that you have paid all outstanding PST, penalties and interest; without it, the buyer becomes liable for whatever you still owe, which is exactly the kind of surprise that stalls a closing at the last minute. Start this early — it is one of the few steps in a sale that is entirely on the seller's side of the table and easy to forget until a buyer's lawyer asks for it.
WorkSafeBC clearance letter
If your business has employees, WorkSafeBC premiums you owe can become a lien against the business's assets, and under the Workers Compensation Act a buyer who takes over the business can be held responsible for your unpaid assessments. Request a clearance letter from WorkSafeBC before you list, confirming your account is in good standing, so this never becomes a closing-day problem.
Licence transfers are your process too, not just the buyer's
A liquor licence, food premises permit, child care licence, taxi licence or cannabis licence does not automatically follow the business to a new owner — most require the current licensee (you) to initiate the transfer application with the relevant regulator. Our category guides (restaurants and liquor licences, daycares, gas stations, taxis) cover each process; start the paperwork as soon as you have an accepted offer; a slow transfer is a common reason closings get pushed back.
How the sale is taxed: asset sale vs. share sale
In an asset sale, the corporation sells its assets and generally reports a mix of capital gains (on goodwill and certain property) and recapture of depreciation (on equipment claimed as capital cost allowance); the proceeds sit inside the corporation until you pay them out to yourself, at which point a second layer of personal tax usually applies. In a share sale, you personally sell the shares of the corporation and report a capital gain directly — only half of a capital gain is taxable — and if the corporation qualifies as a Canadian-controlled private corporation carrying on an active business, you may be able to claim the Lifetime Capital Gains Exemption (LCGE) on qualified small business corporation (QSBC) shares.
The LCGE base amount was raised to $1,250,000 per individual for dispositions from June 2024 onward and is indexed for inflation in later years — check the current year's exact figure on the CRA's own page before relying on a number, since it changes annually. To qualify, the shares generally need to pass tests on how much of the corporation's assets were used in an active business in Canada both at the time of sale and throughout the prior 24 months, and you generally need to have held the shares for at least 24 months. These rules are detailed and fact-specific; get your accountant to confirm your eligibility well before you negotiate the deal structure, because whether a buyer will agree to a share sale at all is itself a negotiating point.
GST on the sale
GST generally applies to the sale of business assets, but buyers and sellers who are both GST registrants can often jointly elect under the Excise Tax Act to have no GST charged on the sale of a business or part of a business as a going concern. Ask your accountant whether this election is available for your deal — it avoids the buyer having to finance the GST and then claim it back.
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Frequently asked questions
What is the Lifetime Capital Gains Exemption worth to me?
It shelters part of a capital gain from tax when you sell qualifying shares — the base amount was set at $1,250,000 per individual starting June 2024 and is indexed for inflation afterward, so confirm the exact current-year figure on the CRA's website. It only applies to a share sale of qualifying shares, not an asset sale, and eligibility depends on tests your accountant needs to confirm.
Do I need a PST clearance certificate if I'm doing a share sale?
The PST clearance certificate applies to the sale of taxable business assets in an asset sale. In a share sale you are not selling assets, so PST does not apply to the transaction itself in the same way — but any of the corporation's own outstanding PST liabilities still belong to the corporation the buyer is acquiring, so it remains part of due diligence either way.
Should I clean up informal bookkeeping before I list?
Yes. Buyers and lenders price uncertainty as risk. A clean, accountant-prepared set of statements for the last three years is one of the highest-return steps you can take before listing, often more valuable than any single marketing decision.
Sources
- Province of BC: Buying and selling a business (PST rules and clearance certificate)
- WorkSafeBC: Get a clearance letter
- Canada Revenue Agency: Line 25400 — Capital gains deduction
- Canada Revenue Agency: Guide T4037, Capital Gains
This guide is general information for British Columbia, not legal, tax or financial advice. Rules change; confirm current requirements with the regulator linked above and with your own lawyer and accountant before you sell.