Physician Practice Buy-Sell + Section 85 Rollover Canada 2026
Reviewed by Bader A. Chowdry, CPA, CA, LPA on
Last updated: July 19, 2026. Author: Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA Professional Corporation, Mississauga.
Physician practice buy sell CPA Ontario in one line: the structure you sell under decides whether roughly $400,000-$500,000 of after-tax cash stays with you.
Quick answer (55 words): An Ontario physician or dentist selling a $1.5M practice through a properly structured Medicine Professional Corporation (MPC) or Dental Professional Corporation (DPC) can realize the gain almost tax-free by multiplying the $1,275,000 LCGE across spouse and adult family members via a family trust. The 24-month runway is critical. Insight Accounting CPA models each rollover.
Why does practice buy-sell structuring matter?
The difference between selling a $1.5M practice as an asset sale by a sole proprietor and selling it as a share sale by a QSBCS-qualified MPC is roughly $400,000-$500,000 of after-tax cash to the seller. That gap comes from three levers: the LCGE ($1,275,000 per shareholder), the 50% inclusion rate on residual capital gains, and the ability to defer or spread gains through Section 85 elections.
How does Section 85 rollover work for a practice sale?
Q: How does Section 85 rollover work for a physician or dentist practice sale?
Section 85 of the Income Tax Act lets a taxpayer transfer eligible property (goodwill, equipment, accounts receivable, leasehold improvements) into a Canadian corporation at an elected transfer amount between adjusted cost base and fair market value, in exchange for share consideration plus limited “boot” (non-share consideration). The elected amount is treated as the transferor’s proceeds and the transferee’s cost base. Filed on Form T2057.
Typical use case for a physician sale: the physician has been operating as a sole proprietor. She wants to sell to a colleague. Direct asset sale would trigger ordinary income treatment on the goodwill and full recapture on the equipment. Instead:
- T-24 to T-30 months before target sale date: Physician incorporates an MPC and Section-85-rolls the practice from sole proprietor into the MPC. Elects amounts to defer gain. Take back voting common + non-voting participating shares.
- Simultaneously: File a family trust freeze — the physician holds voting fixed-value shares; the family trust holds growth-participating shares for spouse + adult children beneficiaries.
- Hold 24 months to qualify shares as QSBCS under section 110.6.
- Sale: Buyer purchases shares from all shareholders (physician + trust distributes to beneficiaries). Each shareholder claims up to $1,275,000 LCGE. Residual gain taxed at 50% inclusion at each shareholder’s marginal rate.
For a $1.5M practice with a family of four beneficiaries claiming LCGE, the effective tax on the sale can drop below 5% — vs. roughly 27%+ on a straight asset sale by an unincorporated physician.
What are the QSBCS tests?
Q: What are the Qualified Small Business Corporation share (QSBCS) tests?
Three tests under section 110.6(1) of the Income Tax Act must all be met:
- The corporation is a CCPC — Canadian-controlled private corporation throughout the 24-month hold.
- 90% asset-use test at the sale moment — 90%+ of the corporation’s assets (by fair market value) are used in an active business carried on primarily in Canada, or are shares/debt of a connected small business corporation.
- 50% asset-use test throughout the 24-month hold — 50%+ of the corporation’s assets are used in an active business throughout the entire 24 months.
Common trip-ups on MPC sales:
- Retained cash sitting in MPC investment portfolio at sale moment fails the 90% test. Fix: purify the corporation by paying dividends to shareholders or moving cash to a connected holdco within 24 months of expected sale.
- Practice building held personally by physician, leased to MPC: the building is not an MPC asset, but its rental income can taint MPC characterization. Structure lease terms carefully.
- Cross-family loans from MPC to spouse or holdco can be “non-qualifying assets” at the moment of sale.
Comparison: asset sale vs. share sale for practice buyer + seller
| Item | Asset sale | Share sale (QSBCS) |
|---|---|---|
| Seller after-tax cash on $1.5M | ~$1.05M | ~$1.42M |
| Buyer future CCA / amortization | Full step-up in goodwill + equipment | No step-up; historical UCC continues |
| Buyer regulatory risk | Clean-break, no historical liabilities | Assumes all corporate history + liabilities |
| Buyer HST exposure | Section 167 election available to zero-rate | No HST (share sale exempt) |
| LCGE availability to seller | No | Yes — $1,275,000 per QSBCS shareholder |
| Section 85 rollover pre-sale | Not applicable | Yes — 24 months before |
| Preferred by most physician sellers | No | Yes |
| Preferred by most physician buyers | Sometimes (step-up + clean-break) | Sometimes (lower price) |
What is the typical practice-sale timeline?
Q: What is the typical timeline for an Ontario physician practice sale?
- T-36 to T-30 months: Insight Accounting CPA runs a diagnostic — is the practice already an MPC? What is the current share structure? What is the retained-earnings/passive-asset mix vs. the 90% test?
- T-30 to T-24 months: Section 85 rollover if practice was unincorporated; family trust freeze; share structure re-org; MPC purification (dividend out passive assets).
- T-24 to T-6 months: Buyer marketing; letters of intent; due diligence.
- T-6 to T-3 months: Definitive purchase and sale agreement; closing conditions.
- Closing: Share transfer; Section 85 elections on any post-closing rollover; T2 stub period for the MPC.
- T+1 to T+12 months: LCGE claims on personal returns; capital dividend account (CDA) distributions of the tax-free half of the residual gain; wind-down of the trust.
Frequently asked questions
Q: Can I use the LCGE more than once in my lifetime?
No. The $1,275,000 LCGE is a lifetime cap per taxpayer. But a family trust with multiple beneficiaries can multiply the LCGE across all beneficiaries (each one’s separate lifetime cap applies to their trust-allocated gain).
Q: What is the buyer’s tax view on a share purchase?
Buyers of QSBCS shares inherit the seller’s low cost base and lose the opportunity for a goodwill step-up. Many buyer physicians push for asset deals for this reason. Negotiation usually splits the after-tax-difference: buyer pays a “share-deal premium” of 5%-15% above the asset-deal equivalent price to compensate the seller for the LCGE benefit.
Q: Does Section 85 rollover work for dentists (DPC)?
Yes — a Dental Professional Corporation under Ontario’s Regulated Health Professions Act follows the same Section 85 mechanics. The dentist must hold a Certificate of Authorization from the Royal College of Dental Surgeons of Ontario (RCDSO). See dental practice sale case study.
Q: Can I sell the practice and stay on as an employee?
Yes — this is a common transition structure. The MPC sale closes, the buyer continues the practice, and the seller-physician is retained as an employee-physician on a 1-3-year transition contract. Section 84.1 anti-avoidance can apply if the seller stays as a significant shareholder post-sale; Insight Accounting CPA screens for that risk.
Related reading:
- Medical Practice CPA Ontario 2026 pillar
- Section 85 Rollover — Worked Example
- LCGE Multiplication Family Trust
Important — informational only, not advice. Do not use this article to make any decision.
This article is published by Insight Accounting CPA Professional Corporation for general educational purposes only. It is not tax, legal, accounting, financial, or investment advice, and nothing in this article should be relied upon — by anyone, for any purpose — to make a business, tax, financial, accounting, legal, or investment decision.
Tax law, CRA administrative positions, court interpretations, and Ontario provincial rules change frequently, sometimes retroactively, and the content of this article may be incomplete, simplified, out of date, or wrong by the time you read it. The right answer for your specific situation depends on facts this article does not know — your structure, history, jurisdiction, filings, contracts, and goals.
Before acting, engage your own Chartered Professional Accountant or qualified advisor who has reviewed your specific circumstances in writing. Insight Accounting CPA Professional Corporation, the author, and any contributors expressly disclaim all liability — direct, indirect, or consequential — for any action taken or not taken on the basis of this content.
Insight Accounting CPA Professional Corporation is led by Bader A. Chowdry, CPA, CA, LPA — licensed by CPA Ontario under the Public Accounting Act, 2004. To engage us for situation-specific advice, book a free 30-minute discovery call.
Additional CRA & Government Resources
Source: CRA — Form T2057, Election on Disposition of Property Under Subsection 85(1).
Source: Income Tax Act (Canada).
Source: Ontario — Business Corporations Act, R.S.O. 1990, c. B.16.
