How do I sell my shares to my own company?

When a company buys your shares itself, the deal is a repurchase or redemption, not a sale to another investor. The money comes from the company, the shares go back to it, and the remaining shareholders end up owning a larger share of what is left. Both corporate law and tax law have specific rules for it.

What corporate law requires

The Canada Business Corporations Act lets a corporation buy back shares it issued, subject to its articles. It may not make a payment if there are reasonable grounds to believe it is, or after the payment would be, unable to pay its liabilities as they become due, or that the realizable value of its assets would fall below its liabilities and the stated capital of all classes. Ontario’s Business Corporations Act has a parallel rule, and both Acts set out exceptions with their own payment limits, including one for redeemable shares (CBCA ss.35–36, OBCA ss.31–32).

What happens to the shares

Shares a corporation buys back are cancelled or, if the articles limit the number of authorized shares, may be restored to authorized but unissued status, and the stated capital account is reduced. The Act’s limit is written as a test on any payment to buy the shares, so ask your lawyer how it applies if you are paid in instalments.

How the tax works

Subsection 84(3) of the Income Tax Act deems the corporation to have paid a dividend equal to the amount it pays above the paid-up capital of the shares redeemed, acquired or cancelled, subject to exceptions in s.84(6) and (8). Whether a capital gain or loss also arises, and how it is measured against your cost base, is a separate calculation for your accountant. The CRA describes the capital gains deduction as one claimed against taxable capital gains, so it does not shelter the dividend part.

A different transaction from a holding company sale

Selling to a separate holding company you control is not the same deal and has its own rule, covered in selling shares to your own holding company.