Introduction
Many dental practices are co-owned — two dentists who started together, or a practice where an associate bought in to become a partner. When the relationship evolves to the point where one partner wants to exit or one wants to acquire full ownership, the mechanics of the buyout — price, structure, financing, tax — need to be worked through carefully.
Scenario: Dr. Osei Wants to Buy Out Dr. Park
Drs. Osei and Park each own 50% of a dental professional corporation in Mississauga. The practice has been operating for eight years, generates $850,000 in gross revenue, and has been valued by an independent business valuator at $1.2 million for the practice as a going concern.
Dr. Park is moving to British Columbia and wants to exit. Dr. Osei wants to acquire full ownership and continue the practice. Neither has $600,000 in liquid assets. The question is how to structure the transaction so it happens efficiently, at a price both consider fair, and without either party being unnecessarily taxed.
Step 1: Confirm What Is Being Bought and Sold
Is this a share purchase (Dr. Osei buys Dr. Park's shares of the dental professional corporation) or an asset purchase (the corporation sells its assets — goodwill, equipment, patient list — to a new entity)?
From Dr. Park's perspective, a share sale is almost always preferable — it produces a capital gain (potentially sheltered by the LCGE), rather than triggering corporate tax followed by personal tax on the distribution.
From Dr. Osei's perspective, an asset purchase gives him a stepped-up cost base for goodwill and equipment, generating future CCA deductions. In a share purchase, he inherits the corporation's historical asset bases.
In practice, for a $600,000 share transaction where Dr. Park's ACB of the shares is relatively low, the LCGE may shelter a significant portion of the gain. Both parties typically end up preferring the share sale structure when the LCGE benefit is modelled for the seller.
Step 2: Valuation and Price
The business valuator's $1.2 million going concern value is a starting point, not necessarily the final price. The valuation assigns value to goodwill (the patient base, referral relationships, practice reputation), equipment, and working capital. In a dental practice, goodwill typically represents the largest component.
For a 50% share purchase, the base price is $600,000. Adjustments may be made for:
Working capital (cash and receivables minus payables in the corporation at the closing date)
Existing equipment financing or practice liabilities
Conditions around the selling dentist's transition period (continued practice presence for patient retention)
Step 3: Financing the Acquisition
Dr. Osei does not have $600,000 available personally. Common financing structures include:
Bank financing (practice acquisition loan): Most major Canadian financial institutions and credit unions offer dental practice acquisition financing. Dr. Osei's new 100% ownership of a profitable practice is collateral. The loan is repaid from practice cash flow.
Vendor take-back (VTB): Dr. Park accepts a portion of the purchase price as a vendor-financed note — paid out over three to five years from practice cash flow. The VTB is simpler to arrange than bank financing and can be structured to serve both parties' tax interests (instalment sale treatment for Dr. Park, deferred cash out rather than lump sum).
Hybrid structure: A down payment funded by bank financing, with a VTB for the balance.
Step 4: Tax Consequences for Dr. Park
Dr. Park's capital gain on the sale of her 50% share is the proceeds ($600,000) minus the ACB of her shares (likely low — perhaps $25,000–$50,000). The capital gain is approximately $550,000–$575,000.
If the shares qualify as QSBC shares (the corporation is a CCPC, primarily holds active business assets, meets the 24-month holding requirements), Dr. Park can apply her LCGE — sheltering up to approximately $1.25 million of cumulative capital gains. Her $550,000 gain may be partially or fully sheltered, depending on prior LCGE use.
If the shares do not qualify — perhaps because the practice has accumulated passive investments inside the professional corporation representing more than 50% of asset value — purification before the sale is necessary.
Step 5: Tax Consequences for Dr. Osei
Dr. Osei acquires Dr. Park's shares at $600,000 — this becomes the ACB of those shares. He now owns 100% of the corporation. When he eventually sells or winds up the corporation, the total ACB of his shares is his original 50% ACB plus the $600,000 paid for the other 50%.
When to Speak With a CPA
Both parties should have independent CPA advice in this transaction. Dr. Park needs to assess QSBC qualification, LCGE availability, and whether a share sale or asset sale is preferable for her. Dr. Osei needs to model the financing, the long-term ACB and CCA implications, and the practice's post-acquisition tax position. Both need to engage well before the term sheet is signed.