Tag: optometry practice sale

Understanding Capital Gains: Inclusion Rates, the LCGE, and Capital Losses

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Roxanne Arnal ECBC Understanding Capital Gains Inclusion Rates, the LCGE, and Capital Losses

For many optometrists, much of their financial planning focuses on practice growth, long-term investing, and retirement preparation. Yet some of the most significant tax consequences arise when an investment, business asset, or practice interest is sold.

Understanding how capital gains, capital losses, and available exemptions are treated can provide valuable context when making major financial decisions.

What Is a Capital Gain?

A capital gain occurs when an asset is sold for more than its adjusted cost base. Common examples include investments held in a non-registered account, real estate that is not a principal residence, or shares of a private corporation, such as your practice.

For example, if an investment was purchased for $100,000 and later sold for $150,000, the capital gain would be $50,000.

Unlike employment or professional income, only a portion of a capital gain is taxable.

Understanding the Capital Gains Inclusion Rate

As of 2026, the capital gains inclusion rate remains at 50%.

This means that only half of a realized capital gain is included in taxable income. Using the previous example, a $50,000 gain would result in $25,000 of taxable income.

While the inclusion rate has changed several times throughout Canadian tax history, capital gains continue to receive preferential tax treatment compared to employment or professional income.

Why Capital Gains Matter for Optometrists

An optometrist may realize capital gains through:

  • The sale of shares of an incorporated practice
  • The sale of investments held outside registered accounts
  • The transfer of certain business assets
  • The disposition of recreational or investment real estate

Since practice value often represents a significant portion of an optometrist’s net worth, understanding the tax implications of a future sale becomes increasingly important as retirement approaches.

The Lifetime Capital Gains Exemption (LCGE)

One of the most valuable tax provisions available to Canadian business owners is the Lifetime Capital Gains Exemption (LCGE).

The LCGE allows eligible individuals to shelter a significant portion of capital gains realized on the sale of qualified small business corporation shares. The exemption was increased to $1.25 million, with the limit indexed to inflation beginning in 2026.

When available, the LCGE can significantly reduce or even eliminate tax on a portion of the gain realized on the sale of a professional corporation.

However, eligibility requirements are detailed and must be satisfied both at the time of sale and throughout the 24 months leading up to the transaction.

Key tests must be met regarding:

  • The nature of the corporation’s assets
  • The ownership of the shares
  • The active business use of corporate assets

Seemingly minor issues, such as excess passive investments and permanent life insurance policies accumulating inside a corporation, can sometimes affect eligibility. As a result, corporate structures should be reviewed well before a planned sale to preserve eligibility for the exemption.

What Happens When Investments Decline? Understanding Capital Losses

Not every investment produces a gain.

When an asset is sold for less than its adjusted cost base, the resulting loss is known as a capital loss.

Capital losses generally cannot be used to reduce employment income, professional income, or other ordinary sources of earnings, but rather are applied against taxable capital gains.

This creates several planning opportunities.

A capital loss may be used to:

  • Offset taxable capital gains realized in the current year
  • Carry back against taxable capital gains from any of the previous three taxation years
  • Carry forward indefinitely to offset future taxable capital gains

This flexibility can be valuable during periods of market volatility, particularly when gains and losses exist across different holdings.

Looking Beyond the Tax Result

Although tax considerations are important, they are only one part of a larger financial picture that may include retirement planning, liquidity needs, risk management, and estate objectives.

Tax on a capital gain is often the result of a successful investment outcome.

Conversely, realizing a loss solely for tax reasons may not improve long-term financial results if the investment strategy itself no longer aligns with broader objectives.

For optometrists who already have significant exposure to a single business asset through their practice, this balanced perspective can be particularly valuable. The tax treatment of gains and losses matters, but so does maintaining an investment portfolio that supports diversification and long-term financial stability.

A Useful Framework

Capital gains rules influence investment decisions, business succession planning, and retirement outcomes throughout an optometrist’s career.

The inclusion rate determines how gains are taxed, the LCGE may provide significant relief on the sale of qualifying practice shares, and capital losses can help offset gains when investment results are uneven.

Understanding how these rules work provides a stronger foundation for making informed financial decisions over time.

Have more questions? We’re here to help.

Roxanne Arnal is a Certified Financial Planner®, Chartered Life Underwriter®, Certified Health Insurance Specialist, former optometrist, Professional Corporation President, and practice owner. She is dedicated to empowering individuals and their wealth by helping them make smart financial decisions that bring more joy to their lives.

This article is for information purposes only and is not a replacement for personalized financial planning. Errors and omissions excepted.

 

 

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS). She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in 2012 to leave optometry and become a financial planning professional. She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

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Debt Free, Cash Free Deals in an Optometry Practice Sale

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Roxanne Arnal Debt Free, Cash Free Deals in an Optometry Practice Sale July 2026

When an optometry practice changes hands, attention often settles on the purchase price. But beneath that number is a more practical question: what exactly is being transferred to the buyer, and what remains with the seller?

A “debt free, cash free” deal is one way this is addressed, particularly when equipment financing, leases, inventory, and working capital are involved. The phrase sounds simple, but the details can materially affect what the buyer receives and what the seller keeps.

What does “debt free, cash free” mean?

At its core, this structure separates the operating value of the practice from its financing history. The buyer acquires the clinic, patient base, goodwill, systems, and operating assets, but not the seller’s excess cash or debt obligations.

For optometry practices, this distinction matters because equipment loans and leases are often tied directly to the assets needed to run the clinic. Exam lanes, imaging systems, diagnostic technology, and optical equipment may all carry financing that must be dealt with before closing.

Equipment loans and the reality of settlement

Equipment loans are often paid out before closing so the buyer receives the equipment free and clear. That keeps the transaction clean, but it also affects the seller’s net proceeds.

A practice may have a strong headline value, yet the owner’s actual outcome can be reduced if recent technology purchases still carry significant debt. This is one reason sellers need to look beyond the sale price and understand how financing will be settled.

When are leases transferable?

Leases introduce a more nuanced layer. Unlike term loans, some equipment leases can be assigned to a buyer, subject to lender approval. When this happens, the obligation may travel with the asset rather than being paid out beforehand.

In practice, there are three common ways to address leases:

  • Assigned to the buyer: the buyer assumes the remaining payments, usually with lender approval and a purchase price adjustment.
  • Paid out by the seller: the seller clears the lease before closing so the asset transfers free and clear.
  • Handled through a negotiated adjustment: the economics of the lease are reflected in the deal rather than strictly assigned or paid out.

The important detail is that “transferable” does not mean “automatic.” Lease terms, lender policies, and buyer qualifications all matter. This should be clarified early in the transaction process to avoid last-minute disruption.

Working capital and inventory

Even in a debt free, cash free deal, the buyer expects to receive a clinic that can operate on day one. That usually means a normal level of working capital, including receivables, payables, prepaid expenses, and inventory.

Most transactions establish a working capital target that reflects what is typical for that practice. If the seller runs inventory unusually low before closing, or builds it up beyond normal levels, the purchase price may be adjusted back to the agreed baseline.

Inventory deserves particular attention in an optometry practice because frames, lenses, and contact lenses support both patient care and revenue generation. It is usually included as part of working capital delivered at closing, but it is not always valued at retail.

  • Inventory is typically measured at cost rather than retail value.
  • Slow-moving frames, outdated styles, or discontinued product lines may be discounted or excluded.
  • Unusual changes before closing are often adjusted back to a normal operating level.

For sellers, this can highlight capital tied up in product. For buyers, it helps ensure the clinic remains ready to operate immediately after closing.

The definitions drive the outcome

The phrase “debt free, cash free” provides structure, but the definitions drive the outcome. Which debts must be cleared? Which leases can be assigned? What level of working capital is normal? How will inventory be valued?

These details directly influence both the buyer’s experience and the seller’s net result. In optometry, where equipment investment and inventory management are part of daily practice life, clarity on these points can prevent surprises and create cleaner expectations on both sides.

Have more questions? We’re here to help.

Roxanne Arnal is a Certified Financial Planner®, Chartered Life Underwriter®, Certified Health Insurance Specialist, former optometrist, Professional Corporation President, and practice owner. She is dedicated to empowering individuals and their wealth by helping them make smart financial decisions that bring more joy to their lives.

This article is for information purposes only and is not a replacement for personalized financial planning. Errors and omissions excepted.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS). She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in 2012 to leave optometry and become a financial planning professional. She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

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