Services · Estate Freeze Valuation
Estate freeze valuation
An estate freeze depends on one number: what the shares are worth on the day of the freeze. Amir Rosenthal, CPA, CA, LPA, CBV, CFF, prepares that value for family companies and owner-managers across Ontario.
What an estate freeze does
When a shareholder dies, the Income Tax Act generally treats their shares as sold at fair market value, which can mean a large tax bill on the growth in the business. An estate freeze locks in today’s value for the current owner and lets future growth build up in new shares held by the next generation, often through a family trust.
A typical freeze, step by step
- Value the companyA fair market value for the owner’s common shares at the freeze date.
- ExchangeThe owner exchanges common shares for fixed-value preferred (“freeze”) shares.
- New growth sharesNew common shares are issued, often to family or a family trust, for a nominal amount.
- Growth movesFrom then on, increases in value go to the new common shares.
Where the growth goes after a freeze (illustration only)
The tax rules involved
- Section 86 of the Income Tax Act: exchanging shares as part of a reorganization of the company’s capital. No election is filed.
- Section 51: exchanging shares for other shares of the same company.
- Section 85: transferring shares to a holding company in exchange for its shares, with a joint election filed with the CRA.
Each route lets the exchange happen without immediate tax, but only if the numbers are right. If the freeze shares are worth less than the shares given up, and it is reasonable to see the shortfall as a benefit to a related person, rules such as subsection 86(2), subsection 51(2), or paragraph 85(1)(e.2) can create tax for the owner right away. Other rules, such as corporate attribution and the tax on split income, may also matter and need advice from your tax adviser.
Why the valuation matters
The freeze shares are usually redeemable for a fixed amount equal to the value of the company on the freeze date. If that amount is too low, the CRA can say the owner shifted value to family members. Freeze documents commonly include a price adjustment clause, which adjusts the redemption amount if the CRA or a court finds a different value. The CRA sets out when it will respect such a clause in Income Tax Folio S4-F3-C1, Price Adjustment Clauses, including that the parties genuinely intended to transact at fair market value, determined by a fair and reasonable method.
A valuation by a Chartered Business Valuator, prepared at the freeze date and kept with the freeze records, is the evidence that the value was reached properly. For a real example of how the value and the clause interact, read Goudreau v. The King: estate freeze and valuation lessons.
What a freeze valuation covers
- The fair market value of the shares being frozen, as of the freeze date.
- The company’s earnings, assets, and risks, and any non-operating assets such as surplus cash or investments.
- A written report that explains the method and can be kept with the freeze records.
This page is general information, not tax or legal advice. An estate freeze is planned with your tax adviser and lawyer; the right structure depends on your family, the company, and your goals.
Related pages: business valuation, tax planning, family business office, and incorporating in Ontario.
Estate freeze valuation questions
What is an estate freeze, in plain terms?
An owner exchanges their growth (common) shares for fixed-value preferred shares worth what the company is worth today. New common shares are then issued, often to family members or a family trust, for a nominal amount. Future growth goes to the new shares, so the owner’s value, and the tax on it at death, is “frozen” at today’s level.
Which tax rules are used?
A freeze is usually done under section 86 of the Income Tax Act (an exchange of shares in the course of a reorganization of capital), section 51 (an exchange of shares for other shares of the same company), or section 85 (a transfer to a holding company with a joint election). Done properly, each lets the exchange happen without immediate tax. Your tax adviser and lawyer choose the route.
Why does the value matter so much?
The freeze shares should be worth what the old shares were worth. If they are set too low and it is reasonable to regard the shortfall as a benefit to a related person, rules such as subsection 86(2), subsection 51(2) or paragraph 85(1)(e.2) can create an immediate tax cost for the owner. A supportable fair market value is the main protection.
What is a price adjustment clause?
It is a clause in the freeze documents that adjusts the price, for example the redemption value of the freeze shares, if the CRA or a court decides the fair market value was different. The CRA explains when it will respect such a clause in Income Tax Folio S4-F3-C1. One of its conditions is a genuine intention to transact at fair market value, determined by a fair and reasonable method.
Is a price adjustment clause enough by itself?
It helps, but it works best alongside a properly prepared valuation. The Tax Court’s 2026 decision in Goudreau v. The King shows how the clause and the value interact; see the article on this site for a plain-language summary.
Can the same person do the tax planning and the valuation?
Often the accountant, the lawyer, and the valuator work together on a freeze. Where Amir already acts as accountant to the company, independence and conflicts are considered before he prepares a valuation for the freeze.
Complimentary discussion
If a freeze is being planned, mention the expected freeze date and who is advising on tax and legal steps when you call or write.