What’s the tax treatment of practice goodwill I sell?
Since the 2017 removal of the eligible-capital-property (ECP) regime, goodwill is depreciable Class 14.1 property under Regulation Schedule II. On disposal, the seller reports (a) full recapture of any CCA claimed against the goodwill up to its original cost, taxed as active business income, plus (b) a capital gain on any proceeds above the original cost (50% inclusion). Both parts flow to the corporation and drive the corporation’s exit tax profile.
Class 14.1 mechanics. Additions after 2016 go to Class 14.1 at 5% declining-balance CCA. On disposal, proceeds up to original cost are recapture (taxable income); proceeds above cost are a capital gain (50% taxable).
Example: an Ontario DPC sells its goodwill for $1,000,000 in 2026. Original goodwill cost from a 2020 practice acquisition: $600,000. UCC just before sale: $475,000 (after five years of Class 14.1 CCA). Recapture = $600,000 – $475,000 = $125,000 (fully taxable active business income). Capital gain = $1,000,000 – $600,000 = $400,000 (50% taxable = $200,000 taxable capital gain). Total corporate income impact: $325,000. Non-taxable half of $200,000 capital gain adds $200,000 to the CDA, available as a tax-free capital dividend.
Share-sale alternative. If the buyer buys the seller’s DPC shares instead of assets, the seller has a capital gain on the shares potentially sheltered by the $1,275,000 LCGE (2026). This is why sellers prefer share deals and buyers prefer asset deals – Class 14.1 recapture is a real cost, but hybrid transactions and price adjustments bridge the gap.
Note: Pre-2017 ECP balances flowed into Class 14.1 at 75% x pre-2017 cumulative eligible capital, with grandfathering rules. Older practices sold today may have deferred pre-2017 basis – check the CCA history schedule before pricing.
Source: canada.ca â Class 14.1 goodwill
— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA
Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.