What is an estate freeze and how does it work with my Ontario corporation?

An estate freeze is a restructuring technique that locks in your accrued corporate value at today's amount and shifts future growth to the next generation or a family trust. The most common method involves you exchanging your common shares for preferred shares with a fixed value equal to the corporation's current worth. New common shares, which will capture all future appreciation, are then issued at nominal value to your children or to a family trust for their benefit.

At the time of the freeze you have no immediate tax — your preferred shares are worth what your old common shares were worth. When you eventually dispose of the preferred shares (during your lifetime or on death), tax is triggered on an amount fixed at today's value. All future corporate growth accrues on the new common shares, owned by the next generation, and is taxed in their hands at potentially lower rates or sheltered by their own lifetime capital gains exemptions.

Freezes require careful corporate, trust, and tax legal work. Attribution rules, TOSI (tax on split income) rules, and valuation all affect whether the freeze achieves its goals. Get integrated advice from a tax lawyer and accountant before proceeding.