The 1.2M Tax Problem Hidden Inside a $7M Contracting Business

AT A GLANCE

What Changed When the Right Structure Was in Place

40%

YOY Revenue Growth

Since engaging gauvreau

65%

Increase In Gross Profit

Improved Margins YOY

$315K

Projected Exit Savings

Per beneficiary at sale

BACKGROUND

Built Something Real. Wanted to Do Right by the People Who Helped.

Our client is an established Canadian HVAC contractor doing residential and commercial work across a major metro area. Professional technicians, strong reputation, years of consistent growth. By early 2024 they were sitting at $7 million in revenue with their sights set on $10 million.

The owner had built the business alongside one key person. That person showed up every day, helped grow the team, and was central to the company becoming what it was. The owner had made a promise: there would be a path to ownership when the time was right.

By early 2024 that promise was still on the table and getting harder to deliver on. The harder they looked at it, the more it seemed like it just wasn’t going to work.

THE PROBLEM

Two Problems Nobody Had Told Them About

On the surface it looked like a cash problem. The employee wanted to buy in but didn’t have the capital to fund a purchase. There was no mechanism to get money to them, and you can’t just hand over equity in a business without a transaction that someone has to pay for.

But the cash problem wasn’t even the real issue.

Underneath it was something far more serious that nobody had flagged: the business was offside the criteria that would allow for a transfer that would allow the primary shareholder the ability to claim their Lifetime Capital Gains Exemption. The LCGE is one of the biggest tax advantages a Canadian business owner can access when they sell. Excess cash and assets sitting inside the operating company meant this business didn’t qualify. If the owner had sold equity in the state things were in, the tax hit would have been significant and completely avoidable with the right structure.

Two people trying to do a deal that made sense for both of them. The setup was quietly working against both of them, and nobody knew it.

There was also a third problem running underneath everything else. The books were a mess. Accounts hadn’t been reconciled properly. Filings had errors. The previous provider wasn’t keeping up and the owners had been asking for better for a while without getting it. Cash flow blind spots, compliance risk, and numbers that couldn’t be trusted for planning.

THE DISCOVERY

They Knew Something Was Off. They Just Didn’t Know How Much.

When we reviewed the file, the structural problems and the bookkeeping issues all came up together. The owners weren’t shocked. They had been pushing for answers for a while and not getting them.

What hit differently was seeing the full cost of what they were sitting on. The LCGE issue alone had the potential to create a massive and completely avoidable tax bill at the point of any future sale. The employee buyout wasn’t just a cash flow puzzle. It was a structural problem that needed a specific solution. And the bookkeeping gaps weren’t just messy. They were creating real compliance risk and making it impossible to make decisions based on accurate numbers.

The owners knew something needed to change. Laying it all out made it clear just how much was at stake if they didn’t.

WHAT WE DID

Three Problems, One Coordinated Solution.

We started with the books because nothing else could be trusted until the numbers were right. Accounts were reconciled, filing errors corrected, and proper processes put in place for the team. We ran weekly working sessions to build good habits into the day-to-day, and took over bookkeeping, year-end, and tax planning so the owners could stop second-guessing whether what they were looking at was accurate.

With clean numbers in hand, we turned to the structure. Getting the business back onside for the Lifetime Capital Gains Exemption meant moving excess cash out of the operating company and into a holdco for the original owner. This may sound simple on the surface, but required a series of transactions carried out in a specific way to avoid a large tax bill. That cleaned up the balance sheet and restored access to the exemption before any transaction took place.

That set the stage for what the owners had been trying to do all along. We set up a structure, including a holdco for the key employee and structured a dividend flow so the operating business itself paid ongoing dividends directly into that holdco. The employee utilized those dividends to fund the purchase of equity over time, with no large lump sum required upfront. The selling shareholder was now able to receive these proceeds tax free, now that we were back onside the rules to claim the LCGE. The business created a path to ownership that the cash position alone never could have.

In the course of the restructuring, we also identified an additional opportunity for the owner to access $600,000 from the excess cash that was originally sitting stagnant in the operating company personally on a tax-free basis, a meaningful outcome from the work being completed.

From there we set up family trusts with multiple beneficiaries for each owner, alongside individual holdcos. The trusts are projected to save the tax on $1.25 million in proceeds per beneficiary at exit. The Trusts also create an avenue to move cash out of the operating company and into the respective holdcos on a tax free basis, which will help ensure the business owners don't go offside the rules allowing them to claim the LCGE in the future.

The individual holdcos mean each owner controls their ongoing share of profits independently. What one person chooses to do with their money, whether that is drawing income, investing, or building personal wealth, has no bearing on the other. They each move at their own pace, on their own terms.

Monthly advisory sessions were brought in to track performance, surface issues early, and keep the financial strategy pointed toward the $10 million revenue goal.

THE RESULTS

A Deal That Works. A Business Closing in on $10M.

When we started in early 2024, the partnership was stuck, the structure was offside, and the books needed serious work. Within a year the business had hit its stride. Today this client has:

✓ A key employee on a clear, funded path to ownership without needing external capital

✓ A corporate structure back onside for the Lifetime Capital Gains Exemption, protecting the original owner at sale

✓ Family trusts and individual holdcos for each owner, projecting $315,000+ in tax savings per beneficiary at exit

✓ Each owner in full control of their own financial decisions, independently of the other

✓ 40% year-over-year revenue growth and 65% increase in gross profit

✓ Clean, reconciled books and corrected filings with no outstanding discrepancies

✓ Full bookkeeping, year-end, and tax planning managed on an ongoing basis

✓ Monthly advisory sessions supporting the path to $10M in revenue

The owners call it a turning point. Not just because of the numbers, but because for the first time in a long time the structure is right, the books are clean, and there is an actual plan for what happens next.

THE BIGGER PICTURE

What This Means for Contracting Business Owners

This comes up all the time. A contracting business owner spends years building good people. At some point those people expect to be part of what they helped build, and the owner wants to deliver on that. But without the right structure, the deal that makes sense for everyone on paper blows up in practice for both sides.

The ability to claim a Lifetime Capital Gains Exemption is one of the best tools available to Canadian business owners when they sell. But it has rules and most businesses are not actively managing them. Plenty of owners are offside right now and have no idea. The cost only shows up when the sale is already happening and there is no time left to fix it.

The time to sort this out is before anyone is at the table. Before a buyer shows up. Before you’re trying to fix the structure under pressure with a deal on the line. The owners in this story acted when they felt something was wrong. That decision protected everything they had built.

SOUND FAMILIAR?

If Any of This Resonated, That Instinct Is Worth Acting On

Most business owners who read this story tell us one of two things. Either it sounds exactly like their situation, or they suspect it does but they are not sure. Both are good reasons to have a conversation.

The 30-Minute Tax Review is how we find out. We look at your structure, your filings, and your setup. We tell you honestly what we see.

For most owners at this revenue level, that conversation is long overdue. Based on what we typically find in an initial review, it tends to be worth having sooner rather than later.

This case study is intended for educational and informational purposes only. It reflects the specific circumstances of one client engagement and should not be interpreted as tax, legal, or financial advice. Every business situation is unique. The strategies and outcomes described here may not be applicable to your circumstances. We strongly recommend engaging a qualified tax professional before making any decisions related to corporate structure, tax planning, or business transactions. Results are not guaranteed.