A Section 86 corporate reorganization (commonly known as an “estate freeze”) in Canada generally costs between $10,000 and $25,000 CAD. This combined expense covers the mandatory Chartered Business Valuator (CBV) appraisal to determine share value, and the corporate lawyer fees to draft the complex share exchange documents.
For successful business owners in Canada, planning for retirement and passing the company to the next generation requires careful tax strategy. If you simply give your shares to your children, the Canada Revenue Agency (CRA) will treat it as a “deemed disposition” at fair market value, triggering a massive, immediate capital gains tax bill. To avoid this, Canadian tax law offers a brilliant solution: the Section 86 corporate reorganization under the Income Tax Act.
Commonly referred to as an “estate freeze,” a Section 86 reorganization allows you to lock in (or “freeze”) the current value of your company. 💵 You exchange your existing common shares for new, fixed-value preferred shares. Your children, or a family trust, then purchase new common shares for a nominal amount. As the business continues to grow over the years, all the new value accrues to the children’s shares, while your tax liability remains locked at today’s value. While this saves hundreds of thousands in future taxes, executing it requires precise legal and accounting work.
Step-by-Step Process for a Section 86 Reorganization
You cannot execute an estate freeze with a simple handshake or a downloaded template. A Section 86 reorganization is a heavily scrutinized legal process that must perfectly comply with CRA regulations and provincial corporate registry laws. The steps generally follow this structure.
Step 1: Hiring a Chartered Business Valuator (CBV)
The entire reorganization hinges on an accurate valuation of your company as of the freeze date. 📈 The CRA requires that the new preferred shares you receive have an exact equivalent fair market value to the common shares you gave up. You must hire an independent Chartered Business Valuator to appraise the business. If the CRA later determines your valuation was artificially low, they can apply severe tax penalties.
Step 2: Amending the Articles of Incorporation
Once the value is established, your corporate lawyer must prepare Articles of Amendment. Most operating companies only have standard common shares. Your lawyer will file paperwork with the provincial registry (such as the Ontario Ministry of Public and Business Service Delivery) to create a new class of fixed-value, non-participating, voting preferred shares with specific dividend and redemption rights.
Step 3: Executing the Share Exchange
With the new share classes created, the actual Section 86 rollover takes place. 🤝 You will surrender your old common shares back to the corporation for cancellation. In return, the corporation issues you the newly minted preferred shares. Simultaneously, the company will issue new common shares to your successors (e.g., your children or a discretionary family trust) for a very small subscription price.
Step 4: Updating the Minute Book and Tax Filings
Unlike a Section 85 rollover, a Section 86 reorganization happens automatically under the Income Tax Act if all legal criteria are met, meaning there is no specific election form like the T2057 to file. 📋 However, your corporate minute book must be flawlessly updated with director resolutions, shareholder ledgers, and a “price adjustment clause.” Furthermore, your accountant must report the reorganization on your corporation’s annual T2 tax return.
How Much Does it Cost in Canada?
Executing an estate freeze is a premium professional service. You are essentially buying long-term tax certainty, which requires input from both top-tier accountants and specialized corporate lawyers. Here is a breakdown of the typical costs in CAD as of June 2026:
| Professional Service / Expense | Estimated Cost (CAD) |
|---|---|
| Chartered Business Valuator (CBV) Appraisal | $5,000 – $15,000+ |
| Corporate Lawyer Fees (Drafting & Execution) | $5,000 – $12,000 |
| Provincial Government Filing Fee (Articles) | $150 – $250 |
| Setting up a Family Trust (Optional addition) | $3,500 – $7,000 |
- Accounting Advisory: Before the freeze, you may pay a CPA $2,000 to $4,000 just for the initial tax planning and structural advice.
- Complexity Premium: If your business owns multiple subsidiaries or significant commercial real estate, the CBV valuation costs will easily push toward the higher end of the spectrum.
How Long Does the Process Take?
A Section 86 corporate reorganization is not an overnight task. Gathering the necessary financial data and waiting for the Chartered Business Valuator to complete a comprehensive valuation report generally takes 4 to 8 weeks. Once the valuation is approved, the corporate law firm will need an additional 3 to 6 weeks to draft the resolutions, amend the articles, and finalize the share exchange. In total, expect the process to take 2 to 4 months from start to finish.
Frequently Asked Questions (FAQ)
Do I have to pay capital gains tax when the reorganization happens?
No. That is the entire purpose of Section 86. It is a tax-deferred “rollover.” You do not trigger a capital gains tax at the time of the share exchange. The tax is completely deferred until you either sell the new preferred shares or upon your passing.
Do I lose control of my company if I give up my common shares?
Not at all. Your corporate lawyer will structure your new preferred shares to carry voting rights. Even though the future financial growth belongs to your children’s common shares, you can retain 100% of the voting control over the company’s daily operations.
What is a price adjustment clause?
It is a mandatory legal safety net included in the reorganization documents. If the CRA ever audits the freeze and claims your company was worth more than the CBV stated, this clause automatically adjusts the value of your preferred shares to match the CRA’s number, preventing massive, unexpected tax penalties.
Can I freeze my shares if my kids are too young to run the business?
Yes. Many business owners issue the new common shares to a discretionary family trust rather than directly to minor children. This allows you (as the trustee) to control the shares while still shifting the future growth to the children’s names.
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