Do I keep the target’s loss carryforwards if I buy shares instead of assets?

Tax losses belong to the corporation that incurred them, not to the equipment or goodwill it owns, so deal structure decides whether you see them at all. A target with years of accumulated losses can look like a source of future tax savings, but the Income Tax Act cuts those savings back at the moment control changes hands.

In a share purchase, with limits

When you buy the shares, the corporation stays the same taxpayer, and the CRA treats a change of its owners or directors as an update to existing records. Buying control is a loss restriction event under the Income Tax Act. The corporation’s tax year is deemed to end immediately before that time, and the business-loss part of its earlier non-capital losses can be used afterwards only against income from that same business, or from one selling similar properties or services. The business must also be carried on for profit or with a reasonable expectation of profit. Net capital losses from earlier years cannot be deducted afterwards.

In an asset purchase, none

The Act lets a taxpayer deduct its own losses from other years. When you buy assets, the seller remains the taxpayer and keeps its losses, so they do not travel with the inventory, equipment or goodwill. If a target’s loss pool matters to you, that can be one factor in favour of buying shares, weighed against the liability trade-offs covered in our guide to asset sales versus share sales.

What to check before relying on them

Resident corporations, with a few exceptions such as registered charities, must file a T2 return each tax year, even when no tax is payable, so the target’s filed returns are the place to start. Ask your accountant to confirm which losses are on record, what kind they are, and whether the same business will continue after closing. A seller’s own summary of available losses is not a substitute for that review.