A reorganization changes who owns what, and how, without selling the business to anyone. Done properly it moves future growth to the next generation, separates real estate from operating risk, or tidies a share structure before a sale. Done carelessly it creates tax on gains nobody has cashed.
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From $3,388.87 taxes included
An estate freeze. You exchange your common shares for preferred shares fixed at today's value, and new common shares go to your children or a family trust. Your number is locked; everything the company earns after that accrues to the new shares. The exchange is usually done under section 86 of the Income Tax Act, or section 85 where a rollover election fits the facts better. Get the valuation wrong and the freeze fails years later, on audit, at the worst possible moment.
A holding company. You transfer your operating company shares to a new holdco using a section 85 rollover, taking back shares instead of cash so no gain is realized. Cash then moves up as an inter-corporate dividend and sits beyond the reach of the operating company's creditors. Section 55(2) is the trap: dividends beyond the operating company's safe income can be recharacterized as a capital gain.
Amalgamation or wind-up. Two corporations you own can be merged under section 174 of the Business Corporations Act, or by directors' resolution alone under section 177 where one wholly owns the other. Winding a subsidiary up into its parent under subsection 88(1) of the Income Tax Act reaches a similar place with different paperwork. Which route is cheaper usually turns on the leases, the loans and the licences, not on the tax.
Changing your share structure means amending the articles under section 168 of the OBCA, which takes a special resolution — two-thirds of the votes cast. Where a class's rights are varied, section 170 gives that class a separate vote whether or not it normally votes. And section 185 gives dissent rights on certain amendments and amalgamations: a shareholder who follows the procedure can walk away and demand the fair value of their shares in cash.
An amalgamation needs an amalgamation agreement under section 175, approval by special resolution of each amalgamating corporation under section 176, and articles of amalgamation under section 178 with a statement from a director or officer about solvency and creditor notice. The short-form route in section 177 skips both the agreement and the shareholder vote. Where the change is too complex for a simple amendment, section 182 allows a court-approved arrangement.
Then the unglamorous half. Resolutions into the minute book, old certificates cancelled and new ones issued, and the register of individuals with significant control updated under section 140.2. Consents matter more than people expect: bank security, leases, franchise agreements and shareholders' agreements often treat any change in share ownership as a trigger, even when the business itself has not moved an inch.
No valuation. A freeze or a rollover is only as good as the number the shares were frozen at. A price adjustment clause is a backstop for an honest error, not a substitute for having a valuation done. If the CRA reassesses and there is nothing on file explaining how the value was reached, you are arguing from a standing start.
Real property. Moving land into a new corporation is a conveyance, and Ontario land transfer tax applies unless a deferral for transfers between affiliated corporations is available and its conditions are met — including staying affiliated afterwards. On a deal where the building is most of the value, this single point can decide the whole structure. Price it before you commit.
Timing before a sale. Purifying a company so the shares qualify as small business corporation shares is tested over the months leading up to the sale, not on the closing date alone. Start the process the week a buyer appears and you may already be too late to claim the exemption. Freezes and purifications are planned years ahead for exactly this reason.
Structured properly, no. Sections 85, 86 and 51 of the Income Tax Act all allow shares or property to be exchanged without realizing the accrued gain, provided the consideration and elections are right. Tax gets triggered by mistakes: taking back cash or debt above the tax cost, missing an election, or misvaluing the shares being exchanged. Your accountant sets the numbers and the elections; we build the corporate documents so the two match. Where they do not match, the CRA follows the documents.
For a freeze, yes. The whole point is fixing your value at a defensible number, and the CRA is entitled to test it. For a straightforward holdco insertion between related parties, a formal valuation is sometimes replaced by a documented internal calculation plus a price adjustment clause. Ask your accountant which applies. The cost of a valuation is small next to the cost of defending a number you cannot explain.
Usually not usefully. Once there is an offer, the value is no longer yours to fix — the market has fixed it. Reorganizations done to multiply the capital gains exemption across family members are also subject to holding-period tests measured over the months before the sale, so a structure put in place weeks before closing often fails them. If a sale is on the horizon, get the tax advice before you sign a letter of intent.
Two to six weeks for a straightforward freeze or holdco insertion where the valuation is ready and no third-party consents are needed. Longer where a bank, landlord or franchisor has to consent, where there are minority shareholders with dissent rights, or where a court-approved arrangement under section 182 is the right route. The bottleneck is almost never the filing — it is agreeing the numbers and collecting consents.
No. You file elections and returns after the fact, and the CRA can reassess later. Advance income tax rulings exist for genuinely uncertain positions, but they are slow and expensive and are not used for routine freezes or rollovers. What protects you is a documented valuation, correctly filed elections, and corporate documents that say exactly what the tax filings say happened.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.