An estate freeze is a tax-planning strategy that locks in the current value of your business or assets for you, passing future growth to the next generation to limit future tax.
An estate freeze caps the value of your interest in a company at today's level, converting your common shares into fixed-value preferred shares, while new growth accrues to the next generation's common shares (often held through a family trust). Your eventual deemed disposition on death is limited to the frozen value, capping that tax.
Freezes are used for succession and to multiply access to the lifetime capital gains exemption across family members. They involve a share reorganisation (commonly a section 85 or 86 rollover) and must be structured carefully, and well before a sale or death, to achieve the intended result.
A business owner worth $2 million freezes at that value, taking $2 million in fixed preferred shares. Future growth, say the next $3 million, accrues to a family trust for the children, keeping that growth out of the owner's taxable estate.
Primary source
- Income Tax Act, s. 85(1) Transfer of property to corporation by shareholders
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Canada runs three systems. The federal GST is 5% for 2026 and applies nationally. Five participating provinces fold a provincial share into one harmonised rate: 13% in Ontario, 15% in New Brunswick, Newfoundland and Labrador and Prince Edward Island, and 14% in Nova Scotia since 1 April 2025. Others add their own tax to the 5% GST, giving 12% in British Columbia and Manitoba, 11% in Saskatchewan and 14.975% in Quebec. Alberta and the territories charge 5% only.
A tax credit reduces the tax you owe, whereas a deduction reduces the income the tax is calculated on. Non-refundable credits, such as the basic personal amount or tuition, can bring tax down to nil but pay nothing beyond that. Refundable credits, such as the GST/HST credit, are paid out even when no tax is owing. Almost every credit is claimed on the return, so filing is what releases the money.
Taxable income appears near the end of the income and deduction pages of your T1. Start with total income, subtract the deductions you claim to reach net income, then subtract the further deductions that apply to arrive at taxable income. The quickest place to read it is your notice of assessment or the summary page in your tax software. My Account shows assessed figures for earlier years if you need them.
Personal income tax is the tax an individual pays on income from all sources: employment and self-employment earnings, pensions, investment income and the taxable portion of capital gains. Canada applies graduated federal rates with a provincial or territorial layer on top, reduced by credits such as the basic personal amount. Residents are taxed on worldwide income, non-residents only on certain Canadian-source income. You report it on a T1 return each year, and employers withhold tax as you are paid.
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Reviewed and fact-checked by Udit Gupta
Ex Big 4 — Ernst & Young, Deloitte · International & cross-border tax specialist · CPA Canada (In-Depth Tax Program) · Chartered accountant, ICAI & MIA
Udit Gupta has over 15 years of experience helping corporations and business owners with corporate structuring, corporate tax filing, bookkeeping, payroll, GST/HST, cross-border tax and CRA representation. Big 4 trained at Ernst & Young and Deloitte, and qualified as a chartered accountant in India and again in Malaysia, he founded his accounting practice in 2014 to serve entrepreneurs, startups and non-resident business owners across Canada. View full member bio.
The Institute of Chartered Accountants of India — member 521458 · Malaysian Institute of Accountants — member CA 44667 · Ex Big 4: Ernst & Young, Deloitte · CPA Canada (In-Depth Tax Program), completed 19 Dec 2023 · In-Depth GST/HST Part I, 12 Jul 2022 · Part II, 5 Jul 2023
Editorial policy. Every page is researched against primary sources — the Income Tax Act, CRA publications and CPA Canada guidance — and every rate or threshold is stated with the tax year it applies to.
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