How do I plan succession for a sole proprietorship?

Business succession planning for sole proprietors starts from a fact about the structure. The Canada Revenue Agency (CRA) says a sole proprietorship is legally and directly tied to one specific individual. There is no separate company to hand over, so a successor cannot simply take over the owner’s shares. What passes is the business itself: its assets, its customers, its name and its goodwill, plus the contracts that can be moved. That changes what a plan has to cover. This guide walks through what the CRA says happens on a change of owner, how a sale price is set, and what to settle early so the handover is not left to the last month.

Why the new owner starts fresh with the CRA

The CRA’s guidance on a change of owner for a sole proprietorship says that if you sell or stop operating your business, you must close all your CRA program accounts, and that a new owner can’t continue using the old business number (BN) and will have to get a new BN and new program accounts for the business. The CRA notes that you can close the accounts online through My Business Account or Represent a Client. The seller’s side is covered in its page on selling a business, which says that if the business has a BN you should contact your tax services office, since you might have to cancel it. It adds that it is important to contact the office whenever an owner of a sole proprietorship, a member of a partnership or a director changes. Treat the tax-office call as a dated task in the plan, not an afterthought.

The accounts that close on a sale

The CRA states that if the business you are selling has employees, you must close your payroll account. If it has a goods and services tax/harmonized sales tax (GST/HST) account, you must contact your tax services office to close it. It also says that you may be able to make a joint election with the purchaser so that no GST/HST is payable on the sale. The CRA says the election cannot be made if you sell only one or more assets of your business, or if you are a registrant and the purchaser is not. Other conditions apply, including what counts as part of a business and the filing deadline for the purchaser, and the CRA lists supplies on which you still charge GST/HST even with the election, so confirm the details on the CRA’s Form GST44 page with your accountant. The CRA says the purchaser has to file the form no later than the due date of their next GST/HST return in which tax would have been payable if the election had not been made. Build these accounts into the closing checklist alongside the transfer of the assets.

How a sale price is set

Because the buyer takes assets rather than shares, the agreement may name a price for the whole business or break it down. The CRA notes that in some cases a sales agreement sets out a price for each asset, a value for the inventory and, if applicable, an amount that can be attributed to goodwill. Ask your accountant whether and how that split affects tax before you sign. A valuation from a Chartered Business Valuator can support the numbers; our guide on what your business is worth explains what goes into one.

Finding and preparing the successor

The Canadian Federation of Independent Business (CFIB) reports that finding a suitable successor is the most significant barrier for owners and that formal succession planning remains uncommon. It also reports that owners with a formal written succession plan are far more confident in achieving a successful exit than those with no plan. The Business Development Bank of Canada (BDC) publishes advice on planning a succession strategy for a smooth transition to new ownership while maintaining the values of the business. For a sole proprietor, that means deciding early whether the successor is a family member, an employee or an outside buyer, and asking your advisers what documents and timeline each route would need.

• List every contract, licence, permit and lease in your personal name and check which can be assigned and which need the other party’s consent.
• Separate business and personal bank accounts, vehicles and equipment so ownership of each asset is clear.
• Write down the processes, supplier terms and customer details that live only in your head.
• Ask your accountant how the sale would be taxed and when the GST/HST and payroll accounts would close.
• Decide who could run the business if you could not work, and what authority they would need.

If the buyer is not family

A sale to an outsider raises negotiation points to settle: the price, any period during which you stay to help, and any promise not to compete. None of these is set by the tax rules above, so they come from the agreement you and the buyer sign. Ask a lawyer to draft it, and see is the seller required to help after the sale closes for how transition help is handled.