Valuing Private Company Shares for Estate Administration Tax in Ontario

When someone dies owning shares in a private company — a family business, a professional corporation, a small startup — there is no stock ticker to check for a price. Yet those shares still have to be valued as of the date of death, both for Estate Administration Tax purposes and for federal income tax. Getting that value wrong, in either direction, can create real problems for the estate.

This article looks at how private company shares are generally valued for Ontario estate purposes, who typically performs that valuation, and why an independent, defensible number matters more than it might for almost any other estate asset.

Why Private Shares Don't Have a Simple Price Tag

Publicly traded shares are valued by looking up the closing price on the date of death — straightforward and objective. Private company shares have no equivalent public market, so their value has to be determined based on the underlying business: its assets, earnings, liabilities, and prospects, along with the specific rights attached to the particular class of shares the deceased held.

Two companies of similar size can have very different share values depending on debt levels, whether key contracts or clients are secure, and whether the shares represent full control or a minority position.

What "Fair Market Value" Means for This Purpose

For both Estate Administration Tax and federal income tax purposes, the general standard is fair market value as of the date of death — broadly, the price a willing buyer and willing seller would agree to in an open market, with neither under pressure to act. This is a professional valuation exercise, not a guess based on the company's book value or what the founder thinks the business is "worth."

Who Performs the Valuation

For anything beyond a very simple or clearly low-value holding, an independent business valuator is generally the right choice. A qualified valuator will typically consider:

• The company's financial statements over several recent years, not just the most recent one
• Comparable transactions or valuation multiples for similar private businesses, where available
• Outstanding debts, contingent liabilities, and any pending legal or tax issues
• Whether the shares represent a controlling or minority interest, and what rights attach to that specific class of shares
• Any shareholder agreement provisions that restrict transfer or set a formula for value on death
• Key person dependency — how much of the company's value relies on the deceased personally

Why an Independent Valuation Matters So Much Here

Private company shares are exactly the kind of asset the Ontario Ministry of Finance is most likely to look at closely if an estate's Estate Information Return is ever reviewed, precisely because there is no public price to point to. A documented, professional valuation — rather than an executor's own estimate — gives the estate a defensible position if the number is ever questioned.

The Overlap With Federal Income Tax

Private company shares also trigger a separate, federal issue: a deceased person's capital property, including private shares, is generally treated as disposed of at fair market value immediately before death for income tax purposes, subject to spousal or qualifying-trust rollovers. This can create a capital gain reportable on the deceased's final tax return, even though no actual sale took place. The same underlying valuation work often supports both the Estate Administration Tax figure and the tax return, which is another reason a properly documented, professional number is worth the cost.

A Common Planning Tool: Primary and Secondary Wills

Some Ontario estate plans involving private company shares use a "primary" will for assets that require probate and a separate "secondary" will for assets — like private company shares — that generally do not need probate to transfer. This is a lawful, long-established Ontario planning technique used to reduce the portion of an estate exposed to Estate Administration Tax. Whether it makes sense for a particular business owner's situation depends heavily on the shareholder agreement, corporate structure, and family circumstances, and is worth discussing well before death, as part of a wills and estates plan, rather than after the fact.

Timing: Valuing as of the Date of Death, Not Later

Because a business's value can change quickly — a lost contract, a new client, a shift in the industry — the valuation has to reflect conditions as they stood on the date of death, not the date the valuator gets around to the report. Executors should engage a valuator promptly so the analysis is anchored to the right point in time, with contemporaneous records rather than a reconstruction long after the fact.

Frequently asked questions