B U S I N E S S
business freeze value. The growth in
business shares would be taxed in the
hands of the next generation providing
tax deferral.
Probate fees are minimized to an
estate’s value. In Ontario probate fees
are 1.5 per cent of the estate value over
$50,000. There are other probate fee-minimizing
strategies such as:
•• Having dual wills – A second-ary
will for the private company
shares and a primary will for all
other assets.
•• Setting up alter ego trusts – A tool
available for those over 65.
•• Ability to take advantage of multiply-ing
lifetime capital gains exemption:
If properly structured, an estate freeze
may provide an opportunity for multiple
members to take advantage of their
lifetime capital gains exemption. As of
Jan. 1, 2019, up to $866,912 of capital
gains may be exempt from capital gains
for individuals who dispose shares of a
Qualifying Small Business Corporation
(QSBC). A QSBC is, broadly, a Canadian-controlled
private company that deploys
almost all of its assets in an active busi-ness
(taken as over 90 per cent) at the
point of disposition/freeze, with the
majority of assets in an active busi-ness
(taken as over 50 per cent) in the
24-months preceding. If a business has
been generating surplus cash, or has
other assets such as real estate not used
in the business exceeding 10 per cent
of value, there are extra steps that need
to be taken to “purify” the company of
those assets.
Consider how an estate freeze may help
in the following situation: A family-owned
winery has been operated by a husband
and wife for the past 30 years. Their three
adult children are involved with the business
in varying degrees, and the founders want
to retire and start transferring ownership
to their children. However, they are unsure
which of the children will continue to be in
the business.
An estate freeze can be performed so
that a trust is set up with the children as
beneficiaries. The trustees can distribute
share percentages later to the children once
they are certain of each child’s involve-ment.
Parents can retain voting control
of the operating company by receiving a
special class of voting shares as part of the
estate freeze.
Estate freezes are a useful tool in
family-owned and closely-held companies.
If a business is owning surplus cash, there
may be benefits of doing an estate freeze
from a tax planning perspective.
Sale of business
The assets of a business or its shares
could be sold to either an outside party or
family members.
If the proceeds from the sale will be
received over several years, there are provi-sions
in the Income Tax Act to defer those
capital gains through claiming a capital
gains reserve. For sale to an outsider, a
maximum deferral of five years is allowed.
Whereas to a sale for a child, a deferral of
up to 10 years is permitted.
Life insurance
Life insurance is also a key succession plan-ning
tool, especially in a closely held busi-ness.
Life insurance is purchased on the life
of key shareholders:
•• This could help to fund the death taxes
of the estate and thus enable the fam-ily
to continue to operate the business.
Without the life insurance proceeds,
the business may need to be sold to an
Estate freezes are a useful
tool in family-owned and
closely-held companies.
Parents can retain voting control of the operating company by receiving a special class of voting shares as part of an estate freeze
luckybusiness/123RF
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