Posted on June 14th, 2021 in Domestic Tax

Non-residents of Canada: Earnouts and Payments

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Having both parties agree on the purchase price to be paid for a business being acquired/sold (whether assets or shares or some combination of both) is the first step.

The second is who to structure the deal. The purchase price might be a fixed amount paid on closing but many times a contingent element is also involved. This occurs when both parties attempt to bridge a perceived valuation gap in respect of the underlying business.

There are different kinds of contingent considerations, but the most common is an “earnout”. The following article, written by RSM Canada, summarize some of the considerations associated with an earnout arrangement, including the tax treatment of earnouts, and in particular, earnouts in the context of vendors who are non-residents of Canada.

This article is being referenced with permission as a member of the RSM Canada Alliance.