To set up a standard corporate estate freeze in Canada, you can generally expect to pay between $5,000 and $15,000 CAD. This total includes the necessary business valuation fees, accounting costs, and the legal fees required to draft the Section 86 or Section 85 reorganization documents.
As a successful business owner in Canada, planning for the future of your company is essential. A corporate estate freeze is a highly effective tax-planning strategy used to lock in the current value of your business for your own retirement, while passing all future growth-and the associated tax liabilities-on to the next generation or key employees.
While the concept sounds straightforward, executing an estate freeze requires strict compliance with the Canada Revenue Agency (CRA) and the federal Income Tax Act. Mistakes can trigger massive, immediate tax bills. It is highly recommended to hire an experienced corporate and tax lawyer from our directory to ensure the process is handled flawlessly. 💼
Step-by-Step Process for an Estate Freeze in Canada
Whether your private corporation is based in Toronto, Calgary, or Vancouver, the federal tax rules for an estate freeze generally follow a similar structure. A “Section 86 reorganization” is the most common method for a single corporation. Here is how the process usually unfolds.
Step 1: Obtain a Certified Business Valuation
Before you can freeze the value of your shares, you must know exactly what they are currently worth. You will need to hire a Chartered Business Valuator (CBV). They will assess your company’s assets, revenue, and market position to determine its Fair Market Value (FMV). This valuation is crucial because if the CRA disagrees with your number later, it can cause severe tax penalties. 📈
Step 2: Engage a Tax Accountant and Corporate Lawyer
Your accountant will help design the tax strategy, while your corporate lawyer will execute the legal mechanics. Under Section 86 of the Income Tax Act, your lawyer will draft the necessary documents to exchange your existing common shares (which grow in value) for new fixed-value preferred shares.
Step 3: Issue New Common Shares to Successors
Once your value is safely “frozen” in the preferred shares, the corporation will issue new common shares to your children, a family trust, or key employees for a nominal fee (often just a few dollars). Because the current value of the company is entirely absorbed by your preferred shares, these new common shares start with a value of close to zero. 👪
Step 4: Update the Corporate Minute Book
After the share exchange, your corporate lawyer must officially update your company’s minute book. This includes drafting directors’ and shareholders’ resolutions, updating the securities register, and issuing new physical or digital share certificates to reflect the new ownership structure.
Step 5: File Tax Elections with the CRA
Depending on how your freeze is structured (especially if you use a Section 85 rollover involving a holding company), your accountant must file specific election forms with the CRA by the appropriate tax deadline. Missing these filings can nullify the tax benefits of the entire freeze. 📄
How Much Does it Cost in Canada?
A corporate estate freeze is an investment in your family’s future wealth and tax efficiency. The costs are divided among the three main professionals required to execute the plan correctly.
- Chartered Business Valuator (CBV) Fees: $3,000 to $7,000 CAD, depending on the size and complexity of your business.
- Corporate Lawyer Fees: $3,000 to $10,000 CAD to draft the articles of amendment, resolutions, and update the minute book. Complex trusts can increase this cost.
- Accounting Fees: $1,500 to $4,000 CAD for tax planning and filing the CRA election forms.
| Service Type | Estimated Cost (CAD) | Importance |
|---|---|---|
| Business Valuation | $3,000 – $7,000 | Prevents CRA audits and penalties |
| Legal Structuring | $3,000 – $10,000 | Ensures legally binding share exchange |
| Accounting & CRA Filing | $1,500 – $4,000 | Calculates capital gains and tax forms |
How Long Does the Process Take?
An estate freeze is not something that can be rushed. Generally, the entire process takes between 2 and 4 months from start to finish.
The longest part of the process is usually the business valuation, which can take several weeks of analyzing financial statements. Once the valuation is complete, drafting the legal documents and executing the share exchange usually takes a corporate law firm about two to four weeks, assuming all parties are ready to sign. ⌛
Frequently Asked Questions (FAQ)
What is the difference between a Section 85 and Section 86 freeze?
A Section 86 reorganization usually happens within a single existing company (exchanging your shares internally). A Section 85 rollover typically involves transferring your shares or assets to a brand-new holding company. Your lawyer and accountant will determine which is best for you.
Can I do an estate freeze without a lawyer?
No, it is highly inadvisable. Drafting custom preferred share terms (like voting rights and redemption values) requires deep knowledge of Canadian corporate law. Attempting to DIY an estate freeze can lead to massive unintended tax consequences.
What happens if the CRA disagrees with my company’s valuation?
If the CRA determines your company was worth more than you claimed, they may assess immediate capital gains taxes on the difference. This is why using a professional valuator and including a “price adjustment clause” in your legal documents is mandatory.
Does an estate freeze help avoid probate fees?
Yes, it can. Because the future growth of the company is transferred to your successors now, that future value is removed from your estate, significantly lowering the provincial probate fees (Estate Administration Tax) payable upon your passing.
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