To execute an estate freeze in Ontario, you must generally implement a Section 85 rollover. The combined professional fees for a corporate lawyer and a CPA usually range from $5,000 to $15,000 CAD, depending on the complexity of your company’s structure and valuation.
Small business owners in cities like Toronto, Ottawa, and Kitchener face unique financial challenges when planning for the future. As your company grows in value over the years, the potential capital gains tax liability upon your passing grows right alongside it. An estate freeze is a powerful corporate tax strategy designed to “cap” or freeze the current value of your business shares, allowing all future growth to accrue directly to your children, a family trust, or key management employees.
Understanding how this process works under the Canada Revenue Agency (CRA) guidelines is vital for protecting your hard-earned wealth. By locking in your current tax liability, your estate will not be forced to liquidate the family business just to pay the final tax bill. While the upfront professional costs may seem high, the long-term tax savings often amount to hundreds of thousands of dollars. If you are ready to secure your family’s future, consider browsing our directory to connect with a local Ontario corporate lawyer and accountant.
Step-by-Step Process for an Estate Freeze in Ontario
Executing an estate freeze is a highly technical legal procedure. It requires perfect coordination between your legal counsel and your accounting team. Most business owners in Ontario follow these detailed steps to ensure full compliance with the CRA.
Step 1: Obtain a Formal Business Valuation
Before you can freeze the value of your business, you must know exactly what it is worth today. A Chartered Professional Accountant (CPA) or a Chartered Business Valuator (CBV) will conduct a comprehensive assessment of your company’s assets, revenue, and market position. The CRA strictly requires the freeze to be executed at Fair Market Value (FMV).
Step 2: Establish a Discretionary Family Trust
While not strictly mandatory, most business owners choose to create a family trust to hold the new growth shares. This allows you to maintain ultimate control over who eventually receives the dividends and capital without handing over outright ownership to young or inexperienced children immediately. Your estate planning lawyer will draft the formal trust deed.
Step 3: Execute the Section 85 Rollover
This is the core mechanical step of the estate freeze. Under Section 85 of the federal Income Tax Act, you will legally exchange your existing, high-value common shares for new “fixed-value” preferred shares on a tax-deferred basis. This special election prevents the CRA from treating the exchange as a taxable sale, saving you from a massive immediate tax bill.
Step 4: Issue New Common Shares to the Beneficiaries
Once your old shares are frozen into preferred shares, the company is technically worth “zero” in terms of future growth. Your corporation will then issue brand new common shares to your family trust or directly to your heirs for a nominal fee (often just $1 CAD or $10 CAD). Any future increase in the company’s value will now be attached to these new common shares.
Step 5: File Articles of Amendment
Because you are creating new classes of preferred and common shares, your lawyer must update your company’s constitution. They will file Articles of Amendment with the Ontario Ministry of Public and Business Service Delivery to formally recognize the new share structure and update the provincial corporate registry.
How Much Does it Cost in Ontario?
The cost of an estate freeze varies widely based on whether your business is a simple holding company or a complex manufacturing operation. Here is a breakdown of typical professional fees in CAD:
- Business Valuation (CBV/CPA): A formal valuation report usually costs between $3,000 and $8,000 CAD.
- Corporate Lawyer Fees: Drafting the trust deed, Section 85 rollover agreements, and Articles of Amendment generally ranges from $4,000 to $10,000 CAD.
- CRA Filing Fees: While there is no direct government fee to file the T2057 election form, late filings can trigger severe CRA penalties of up to $8,000 CAD.
- Ontario Government Fees: Filing Articles of Amendment electronically through the Ontario Business Registry costs exactly $150 CAD.
| Professional Required | Primary Responsibility | Estimated Fee (CAD) |
|---|---|---|
| Chartered Business Valuator (CBV) | Determining the exact Fair Market Value of the business. | $3,000 – $8,000 |
| Corporate / Estate Lawyer | Drafting the Family Trust, Rollover agreements, and Amendments. | $4,000 – $10,000 |
| CPA (Tax Accountant) | Filing the Section 85 election forms with the CRA. | $1,500 – $3,500 |
How Long Does the Process Take?
Proper corporate restructuring cannot be rushed. From the initial consultation to the final filing of the Articles of Amendment, a standard estate freeze in Ontario takes approximately 2 to 4 months. If your business has multiple shareholders or highly complex commercial real estate holdings, the valuation phase alone can take up to 3 months, pushing the total timeline to 6 months or more.
Frequently Asked Questions (FAQ)
Do I still control my company after an estate freeze?
Yes. The fixed-value preferred shares you receive usually come with special voting rights, allowing you to retain full managerial control over the company’s daily operations and major corporate decisions.
Can an estate freeze be reversed if I change my mind?
It is legally possible to execute a “thaw” or “melt” if your retirement financial needs change, but reversing the process is complicated, costly, and can carry severe tax implications. It should only be done with expert legal advice.
Does an estate freeze help avoid the Ontario probate tax?
It can. Because the value of your shares is capped, the Estate Administration Tax (probate fee) on those shares will not continue to grow. Furthermore, using multiple Wills (Primary and Corporate) can often shield these shares from probate entirely.
Is the Section 85 rollover considered taxable income?
No, provided the election forms are filed correctly with the CRA. Section 85 allows you to transfer assets on a tax-deferred basis, meaning the capital gains tax is delayed until you actually sell the new shares or pass away.
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