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Income and Tax Consequences of Selling Ownership Stakes: Evidence from Major Shareholders of Private Firms in Canada

Author

Listed:
  • Terry Moon
  • Linda Wu

Abstract

This paper assesses the income and tax consequences of selling ownership stakes in private companies using linked tax records of business owners in Canada. Comparing major shareholders who sell their entire stakes with matched counterparts who sell at a later time, we find large reductions in their overall income and taxes after selling their company, except for an initial spike in capital gains. Furthermore, they reduce their labor supply and wage income on average. We do not find evidence of serial entrepreneurship across ages or sectors, implying that business owners enjoy a "quiet life" after selling instead of starting new firms or remaining active in the labor market.

Suggested Citation

  • Terry Moon & Linda Wu, 2026. "Income and Tax Consequences of Selling Ownership Stakes: Evidence from Major Shareholders of Private Firms in Canada," RFBerlin Discussion Paper Series 26175, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:26175
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    References listed on IDEAS

    as
    1. David Cesarini & Erik Lindqvist & Matthew J. Notowidigdo & Robert Östling, 2017. "The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries," American Economic Review, American Economic Association, vol. 107(12), pages 3917-3946, December.
    2. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
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    More about this item

    Keywords

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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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