Notional Taxes and Selling Costs: Why the Report Shows Them Separately

A business valuation may show a share value of $1 million and then present a lower amount after estimated taxes and selling costs. For separating spouses, the difference can be substantial. Before using either figure in a settlement, both parties need to understand what each amount measures and which assumptions produce the reduction.

Showing these amounts separately allows the financial calculation to be examined without assuming its legal treatment has already been settled. It also helps distinguish a tax obligation that exists now from an estimate of what might arise under a future transaction.

What a notional tax estimate represents

A notional tax estimate calculates the tax consequences of an assumed transaction, such as selling shares or disposing of corporate assets. It can be relevant even when no sale is planned. The estimate explains a possible consequence of realizing value; it does not establish that the assumed transaction will occur.

Selling costs have a similar dependence on the scenario. Brokerage fees, legal work and accounting costs vary with the transaction and the assets involved. An estimate should identify what would be sold, who would incur the costs and the evidence supporting the allowance.

Begin with the Manitoba valuation framework

Section 15(2) of Manitoba’s Family Property Act generally measures value by what an asset could reasonably realize in an open-market sale between willing parties. The section does not expressly direct an automatic deduction for hypothetical taxes or selling expenses. Counsel should address their treatment in the particular property accounting. [1]

The valuator’s role is to explain the financial consequences under the appropriate instructions. If the legal treatment remains unresolved, separately disclosed calculations let counsel assess alternatives without obscuring the underlying valuation. Neither spouse should have to reconstruct a tax assumption hidden inside a single net figure.

Identify the taxpayer and the transaction

Selling shares and having a corporation sell its assets involve different taxpayers and different tax calculations. CRA’s guidance notes that asset sales can produce recapture of capital cost allowance or a terminal loss. It also identifies possible capital gains deductions for qualifying share dispositions. [2]

A corporate asset sale can leave proceeds inside the company. Moving those proceeds to an individual shareholder requires a further analysis; taxable dividends, for example, are reported as personal income. The report should distinguish corporate tax from any shareholder tax assumed on extracting the proceeds. [3]

For a share sale, examine the shareholder’s tax position on the shares. Their adjusted cost base, available losses and eligibility for relief can affect the result. Corporate tax balances and the shareholder’s personal tax attributes should not be treated as interchangeable.

In particular, a capital gains deduction should not be assumed merely because the company is privately owned. Qualification and the shareholder’s available deduction need verification with the tax adviser. Where that information is outstanding, a calculation showing the effect with and without the proposed relief makes the uncertainty visible.

Explain the move from value to net proceeds

The $200,000 difference is the effect of that scenario, not a separate finding that the shares have lost $200,000 of market value. The example assumes the tax estimate already reflects any relevant treatment of selling expenses. These figures illustrate the presentation and are not tax rates or estimates for an actual business.

Keeping the reconciliation visible lets the parties discuss the disputed assumption directly. If they disagree about timing or a particular cost, the effect can be changed without rewriting the entire valuation. Counsel can then determine which amounts belong in the property accounting.

Timing changes the question

An immediate sale and a sale many years later do not impose the same economic burden today. The timing of payment matters, as do the assumptions about what will happen before disposal. Deferring a tax payment is also different from eliminating it.

Where a report considers future realization, it should explain the assumed date and any allowance for deferral. If timing is uncertain, alternative scenarios can show its effect. An arbitrary percentage reduction to an estimated tax bill gives the parties little basis for evaluating the result.

The proposed settlement transaction also needs its own tax review. A transfer between spouses, a share redemption and a sale to an outside purchaser should not be assumed to produce identical results. A hypothetical sale calculation cannot substitute for advice on how the settlement will actually be implemented.

Check what the valuation already includes

A tax obligation already recorded as a company liability may have been reflected in share value. Tax exposure on gains within the company may also affect what a purchaser would pay for the shares. Before making another deduction, identify which taxes have already influenced the conclusion.

The same discipline applies to selling costs. If an asset appraisal states a value net of disposal expenses, subtracting those expenses again would duplicate the allowance. Reconcile the starting values and their definitions rather than assume every number in an appraisal or financial statement is on the same basis.

A business sale also involves different work from selling one piece of equipment. A broker’s commission schedule for a company transaction should not be applied indiscriminately to every asset. Identify whether the assumed fee is fixed, contingent or percentage based, and whether other professional costs overlap with it.

An accounting deferred-tax balance also requires examination. Its measurement and assumptions may differ from the tax consequences relevant to the valuation. The financial statement label alone is insufficient support for treating it as an immediate cash deduction.

Support the assumptions with records

The 2026 CBV scope standard requires support for significant inputs and assumptions at every report level. Relevant tax assumptions therefore need attention proportionate to their effect on value. A broad description such as “estimated taxes” is inadequate to explain a material adjustment. [4]

Useful support may include tax cost schedules, corporate returns and the history of share transactions. Selling-cost estimates can draw on quotations or relevant engagement terms. The report should state the tax rules and date used, identify important information gaps and explain whether specialist tax advice is needed.

Use the figures to make an informed settlement

Separately stated taxes and costs help both spouses compare assets more carefully. Cash and an ownership interest carrying potential future tax exposure may have the same stated amount but different financial consequences. Recognizing that difference still requires a supportable calculation and a legal decision about the property accounting.

At Acadia Hill, the objective is to make the financial assumptions understandable to the parties and their advisers. Discuss the intended use of any net-proceeds calculation with your family law counsel before relying on it in an agreement. That allows the valuation evidence and the proposed settlement terms to be considered together.

Peter Fast, CBV, Acadia Hill

This article provides general information and is not legal, tax or accounting advice. The appropriate scope depends on the purpose, intended users, available evidence and specific circumstances of the engagement. Family law counsel should advise on how the law applies to your situation.