--- title: "Estate Freeze in Canada: What It Is and How It Works" url: https://www.everstonecpa.com/blog/estate-freeze-canada-small-business description: "An estate freeze locks in today's business value for the owner and shifts future growth to the next generation. See how it works and when it fits." type: guide updated: 2026-10-06 summary: "An estate freeze fixes the current value of a business in the founder’s hands and directs future growth to new shareholders, usually children or a family trust. It caps the founder’s eventual tax bill on death and spreads future gain. It is a reorganization that requires professional advice on your own facts." faq_count: 6 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Estate Freezes in Canada: When They Make Sense for a Small Business Advisory # Estate freezes: *locking in value for the next generation* By EverStone CPA · Updated September 2026 · 8 min read **Quick answer:** An estate freeze fixes the current value of a business in the founder’s hands and directs future growth to new shareholders, usually children or a family trust. It caps the founder’s eventual tax bill on death and spreads future gain. It is a reorganization that requires professional advice on your own facts. Planning a freeze or another change to how the company is owned? That is part of [tax planning for owners](https://www.everstonecpa.com/tax-planning-services-canada). Value is capped today; growth accrues to someone else. **Rather have a CPA handle this?** A CPA at EverStone replies with a straight answer and a fixed fee for your situation. [Get My Fixed Quote →](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) ## Key takeaways - A freeze converts the founder’s growth shares into fixed-value shares, so future growth accrues to someone else. - The main goal is certainty: the founder’s future tax exposure on those shares stops climbing. - Freezes are usually paired with a family trust so beneficiaries do not have to be chosen today. - Timing matters, a freeze done too early can be regretted, and one done too late has less to freeze. - Tax on split income and the attribution rules can undo the intended benefit if the structure is careless. Canada does not have an estate tax, but it does have a deemed disposition on death: a person is generally treated as having sold their capital property at fair market value immediately before dying — the deemed disposition explained in the CRA’s [Guide T4037, Capital Gains](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html). For an owner whose corporation keeps growing, that means an unfunded and steadily increasing tax liability attached to shares that produce no cash. An estate freeze is the standard answer to that problem. Most estate freeze Canada planning starts from that deemed disposition on death. ## What an estate freeze actually does In a freeze, the founder exchanges their common (growth) shares for preferred shares with a fixed redemption value equal to the company’s value today. New common shares — the ones that will absorb all future growth — are then issued, usually to the next generation or to a family trust for a nominal amount. From then on, the founder’s shares are worth their freeze-date value and no more, so the tax on death for them is capped and can be estimated and funded. Everything earned after the freeze belongs, in value terms, to the new common shareholders. **A freeze is a decision about control as much as tax.** Founders normally keep voting control through the preferred shares or a separate class of voting shares. Value and control are separate levers, and they should be set deliberately. **Thinking about a freeze?** We prepare the rollover elections and the T2s for the years around it, with the plan and fee set out in writing first. See [our corporate tax work](https://www.everstonecpa.com/tax-services), or [start the conversation by email](https://www.everstonecpa.com/book-online?service=planning#enquiry-form). [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) ## The mechanics Freezes are done through a corporate reorganization, most often a share exchange under section 86 or a transfer under section 85 — the same election described in our guide to [section 85 rollovers](https://www.everstonecpa.com/blog/section-85-rollover-explained). Either way the founder should not realize a gain on the exchange itself; the point is to move future growth, not to trigger tax today. Where section 85 is used, the election is made on the T2057 form, listed in the sources below. The freeze value must be defensible, because if the CRA later finds the frozen shares undervalued, the difference can be treated as a benefit conferred on the new shareholders. Freeze documents therefore usually include a price-adjustment clause. ## Why a family trust is so common Naming one child as the growth shareholder forces a succession decision years early. A discretionary family trust avoids that: beneficiaries are defined, but who receives what is decided later. With advance planning, a trust can also allow more than one family member’s [lifetime capital gains exemption](https://www.everstonecpa.com/blog/lifetime-capital-gains-exemption-canada-small-business) to be used on a sale. Trusts carry their own compliance and deemed-disposition rules, so they are not free. ## When a freeze fits, and when it does not A freeze tends to make sense when the business has real accumulated value, the owner expects it to keep growing, and there is a genuine intention to pass value to family or to a co-owner. It fits naturally alongside a [holding company](https://www.everstonecpa.com/blog/holding-company-canada-when-it-makes-sense), which is often where the frozen shares end up. It fits poorly when the value is volatile or still small, when the owner may need the growth for retirement, or when there is no one to freeze in favour of. A founder who freezes low and then needs that growth has given away the wrong thing. Refreezes at a lower value are sometimes possible, but they are a repair, not a plan. ## The traps - **Tax on split income.** Dividends paid to family members out of a frozen structure can be caught by the [TOSI rules](https://www.everstonecpa.com/blog/tosi-tax-on-split-income-canada) and taxed at the top rate. A freeze does not create income splitting on its own. - **Attribution.** Where a minor child or a spouse is involved, attribution rules can push income or gains back to the founder. - **Purification.** If the exemption is part of the long-term plan, the operating company has to keep qualifying, which usually means keeping passive assets out of it. - **The 21-year rule.** Trusts face a deemed disposition of their property on a long cycle, which has to be planned for well before it arrives. ## The bottom line An estate freeze is established Canadian succession planning, not aggressive planning. But it permanently changes who owns the growth in your business, and the details — valuation, share terms, trust drafting, control — decide whether it works. A CPA and a tax lawyer should review your facts first. That work sits in [business advisory](https://www.everstonecpa.com/advisory-services); start years before you need it. Sources - [Canada Revenue Agency — Guide T4037, Capital Gains](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html) - [Canada Revenue Agency — Form T2057, Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation](https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2057.html) - [Canada Revenue Agency — Corporation income tax](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please [speak with a CPA](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) before acting on anything here. Family transfers are rarely paid for in one instalment, and a longer deferral window exists for them — see [the capital gains reserve explained](https://www.everstonecpa.com/blog/capital-gains-reserve-canada). About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) A freeze usually leaves a family trust holding the growth shares, and that trust now has its own annual filing question. See [expanded T3 trust reporting](https://www.everstonecpa.com/blog/trust-reporting-rules-canada-t3). ### Keep reading [Section 85 rollovers explained →](https://www.everstonecpa.com/blog/section-85-rollover-explained) [When a holding company makes sense →](https://www.everstonecpa.com/blog/holding-company-canada-when-it-makes-sense) [Tax on split income (TOSI) →](https://www.everstonecpa.com/blog/tosi-tax-on-split-income-canada) FAQ ## Frequently asked questions **What is an estate freeze?** An estate freeze is a corporate reorganization that fixes the value of the founder’s shares at today’s fair market value and issues new growth shares to someone else, usually children or a family trust. Future increases in the company’s value accrue to the new shareholders rather than the founder. **Why would an owner want to freeze?** Because a growing corporation means a growing tax bill on death, when capital property is generally deemed disposed of at fair market value. Freezing caps it at a known number that can be estimated and funded. **Does a freeze mean giving up control of the business?** Not necessarily. Value and control are separate. Founders normally keep voting control through the terms of the frozen preferred shares or through a separate class of voting shares, even though the economic growth has been shifted to the new common shareholders. **Why do estate freezes usually involve a family trust?** A trust lets the growth shares be issued without deciding today which family member ultimately gets what. It also supports later planning, including using more than one person’s lifetime [capital gains](https://www.everstonecpa.com/investment-income-and-capital-gains) exemption on an eventual sale. Trusts carry their own filing obligations and their own deemed-disposition rules. **Can an estate freeze be done too early?** Yes. A founder who freezes at a low value and later needs the company’s growth to fund their own retirement has given away the wrong asset. Freezes can sometimes be redone at a lower value, but that is a repair rather than a plan. Timing is one of the main judgement calls. **Do I need professional advice to do an estate freeze?** Yes. A freeze permanently changes who owns the growth in your business and depends on a defensible valuation, carefully drafted share terms, and trust documents that work with the tax on split income and attribution rules. It requires a CPA and a tax lawyer working on your own facts. ## Planning for the next generation? Email us what the corporation holds and who you want it to pass to. A CPA replies by email within one business day with the options and a fixed fee. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=planning#enquiry-form)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies within one business day. Need more? A 45-minute **Advice Call** is $225 plus GST, credited to your first invoice if you become a client within 60 days. Want us to take it on? [Send an enquiry](https://www.everstonecpa.com/book-online?service=planning#enquiry-form). 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