How do partner retirement buyouts work in an accounting firm?

Start with the firm’s partnership agreement: check what it says the retiring partner is paid, over what period and on what conditions. Two outside sets of rules can touch the arrangement, one in tax and one in professional regulation. This page covers the federal rule and, as examples, CPA Ontario’s and CPABC’s pages. It does not suggest terms or amounts; check with the CPA body where you are.

Paying a retiree through the firm’s income

Section 96(1.1) of the Income Tax Act applies where the principal activity of a partnership is carrying on a business in Canada and its members have entered into an agreement to allocate a share of the partnership’s income or loss to a taxpayer who ceased to be a member (or to that taxpayer’s spouse or common-law partner, estate or heirs, or a person in s.96(1.3)). For the purposes of s.96(1) and ss.34.1, 34.2, 101, 103 and 249.1, the recipient is then deemed to be a member of the partnership, and under s.96(1.1)(b) each share allocated is included in the recipient’s income for the taxation year in which the partnership’s fiscal period ends. Read s.96(1.1) for its full conditions. Under s.96(1.4), a right to that share is deemed not to be capital property, and s.96(1.5) applies subsections 70(2) to 70(4) if the taxpayer dies holding such a right.

Telling the regulator in Ontario

CPA Ontario’s page, as archived on 31 May 2025, says members and firms must notify the Registrar of any significant change in practice, composition or structure, before the change takes place or within 30 days after it. If a change is not reported, the rights and privileges of the member and firm may be suspended. A partner’s departure may be such a change, so ask CPA Ontario.

Holding companies in British Columbia

CPABC’s page says members are permitted to use holding companies to hold their shares in an incorporated public practice firm, or in a corporation holding the member’s partnership interest in a public practice firm. It adds that these holding companies are subject to certain requirements under s.39 of the Chartered Professional Accountants Act. Check with CPABC before moving an interest.

Questions for the partnership agreement

• Is the retiree paid through a share of future income, a lump sum, or both?
• Which regulator must be told, and when?
• What happens to the payments if the retiree dies?

For who may own a share of a regulated practice, see whether a partner buyout is different in a professional practice.