If you own shares in a family business, at some point someone may suggest an "estate freeze." A freeze can be a useful planning tool. But it depends on one number that is easy to get wrong: what your shares are actually worth on the day of the transaction.
A Tax Court of Canada decision released on July 28, 2026, Goudreau c. Le Roi, 2026 CCI 142 (in English, Goudreau v. The King, 2026 TCC 142), shows what can happen when that number is wrong. It also shows which steps protected the owners when the CRA challenged it. Below we explain the case in plain language and pull out the practical lessons.
What happened in the Goudreau case
Three men, Jean Goudreau, Sébastien Charland and Michel Gervais, owned the participating (growth) shares of Portes Berthier inc., a company that makes interior doors in Berthierville, Quebec. The company was incorporated in 2014. Its first two years were hard: defective products, customer claims of more than US$300,000, a cash crunch, and loans the owners had personally guaranteed.
On June 29, 2016, on the advice of their lawyer and accountant, the three owners did a standard estate freeze:
- They exchanged their growth shares for new fixed-value "freeze" shares of the company.
- Family trusts for each owner and his family then bought new growth shares for a nominal price. From that point on, future growth would go to the trusts.
- The owners and the company filed elections under section 85 of the Income Tax Act so the exchange could happen on a tax-deferred ("rollover") basis.
The value of the freeze shares was based on a valuation by the owners' long-time accountant, a CPA who presented himself as a tax specialist. His valuation put the transferred shares at $439,890. One of the owners testified that they did not hire an accredited business valuator because of the cost, which he estimated at about $30,000 to $40,000.
The agreements had one more important feature: a price adjustment clause. In simple terms, it said that if a tax authority decided the shares were worth more (or less) than the agreed price, the price would be adjusted, for example by increasing the redemption value of the freeze shares. The terms of the freeze shares had a similar clause. The owners also disclosed the clause on the section 85 election forms (Form T2057) they filed with the CRA.
What the CRA argued
In reassessments dated October 5, 2020, the CRA said the transferred shares were worth about $3.1 million, not $439,890. It relied on paragraph 85(1)(e.2) of the Income Tax Act. That rule can apply when someone transfers property to a corporation for less than it is worth, and it is reasonable to regard part of the shortfall as a benefit the person wanted to give to a related person, here the family trusts. When the rule applies, the shortfall is added to the seller's proceeds, which can create an immediate capital gain.
The CRA added taxable capital gains of $724,932, $418,270 and $292,322 to the three owners' 2016 incomes. It also refused to give effect to the price adjustment clauses. In the CRA's view, the very large gap between the value used and the real value showed that the owners never truly intended to deal at fair market value.
What the Court decided
Justice Dominique Lafleur allowed all three appeals, with costs. The reassessments were sent back to the CRA on the basis that no capital gain should be added under paragraph 85(1)(e.2), and that each owner's proceeds equal the amount elected under section 85.
Interestingly, the owners did not win by defending their original valuation. At trial they accepted that their accountant's number was wrong. Their own expert valued the shares at $2,275,683, and the Court accepted that figure over the CRA expert's higher value. The Court found the CRA's expert had relied on 2014 business-plan projections without adjusting them for how the business had actually changed by 2016.
So the shares really were worth far more than the price used. The owners still won, for two main reasons.
Value of the transferred shares in Goudreau
Why the Court sided with the owners
1. The owners intended to deal at fair market value. The Court found it was not reasonable to say the owners wanted to give a benefit to anyone. Their testimony was found credible. They had hired a professional they trusted to do the valuation, checked his numbers against the financial statements, and asked questions. The Court noted that valuation is a specialized field. It found the owners had no way of knowing the valuation was wrong, and that in the circumstances they were not required to get a second valuation. The Court also said that no law or case creates a presumption that a gap in value, by itself, proves an intent to confer a benefit.
2. The price adjustment clauses worked. The CRA had argued that the clauses were a sham. The Court found no evidence of a sham, so the contracts had to be respected, applying the Supreme Court of Canada's principle in Shell Canada that tax follows the legal relationships taxpayers actually create. Because the clauses had been part of the agreements from day one, the Court said this was not retroactive tax planning. The clauses adjusted the price as of June 29, 2016, to the fair market value the Court determined.
The Court also commented that, because the freeze shares' own terms let their redemption price adjust to fair market value, there was in fact no shortfall in value. Without a shortfall, there was no benefit to the family trusts.
Important limits of this decision
Before anyone relies on Goudreau, keep these points in mind:
- It is a trial-level decision. The Crown can appeal Tax Court decisions to the Federal Court of Appeal. Check the case's status before relying on it.
- Quebec civil law applied. The Court interpreted the contracts under the Civil Code of Québec. Ontario contracts are governed by the common law, so the analysis here may not be the same.
- The facts mattered. The owners won largely because the Court believed them, and because their documents and conduct consistently showed an intention to deal at fair market value. A different record could lead to a different result.
- The cost was real. The freeze happened in 2016, the reassessments came in 2020, and the trial was held in February 2026. That meant years of uncertainty, two expert valuations and a three-day hearing.
Practical lessons for business owners
Treat the valuation as the foundation of the plan. In any transfer between related parties, such as an estate freeze, a section 85 rollover, or a sale to a family member or holding company, the value you use drives the tax result. The CRA's own guidance (Income Tax Folio S4-F3-C1) says a value used with a price adjustment clause must be set by a fair and reasonable method, properly applied to all the circumstances. It also says the value does not have to be determined by a valuation expert. In Goudreau, a significant undervaluation still led to years of dispute.
Use a properly drafted price adjustment clause, and disclose it. The clauses in both the agreements and the share terms were central to the owners' win. Have your lawyer draft them carefully and report them as required.
Document your intention to transact at fair market value. The agreements in Goudreau expressly said the parties intended to deal at fair market value, set by fair and reasonable methods after consulting their accountants. The Court relied on that, together with the owners' conduct.
Keep good records of your business's real situation. The company's difficult early years, supported by evidence, helped explain why a buyer in 2016 would have seen real risk. Those records helped the owners' expert and the Court arrive at a value.
Get advice before you sign, not after you are reassessed. It costs far less to plan a freeze carefully up front than to defend it years later.
How we can help
Amir Rosenthal, CPA, CA, LPA, CBV, CFF, works with owner-managed businesses and families in Toronto and North York on business valuations, estate freezes and corporate tax matters. If you are considering a freeze, a rollover or a transfer of shares to family members, we would be glad to talk it through with you.
Call 416-955-0637 or visit us at 110 Eglinton Ave W, Suite 201, Toronto.
Disclaimer: This article is general information only and is not legal, tax, accounting or valuation advice. It is based on the Tax Court's reasons as released and may not reflect later developments, including any appeal. Every situation is different. Please contact us to discuss your specific circumstances before acting.