Glossary of Terms

The original cost of a property for tax purposes, adjusted for various additions (e.g., legal fees, improvements) and deductions (e.g., return of capital). Used to calculate capital gains or losses on disposition. In an estate freeze, the ACB of the new preferred shares is typically set equal to the ACB of the old common shares exchanged.

A relationship between parties who are independent of each other, not related by blood, marriage, adoption, or corporate control. The ITA deems certain related persons to deal at non-arm's length (subsection 251(1)), which triggers special rules for transactions between them — including the attribution rules and section 84.1.

The amount by which the proceeds of disposition of a property exceed its adjusted cost base plus any expenses of disposition. Currently, 50% of a capital gain (the "taxable capital gain") is included in income. For estate freeze purposes, the capital gain on the preferred shares at the freezor's death is the key tax liability being planned for.

The percentage of a capital gain that is included in taxable income. The rate has been 50% since 2000. In April 2024 the federal government announced an increase to 66.67% for gains above $250,000 per year for individuals and on all corporate and most trust gains, but the measure was cancelled by the Department of Finance on March 21, 2025 before it was ever enacted. The current inclusion rate is 50% for all taxpayers. Because the inclusion rate directly determines the tax cost of the deemed disposition at death, any future change is the single largest swing factor in estate freeze modelling.

Voting equity shares that participate without limit in a corporation's growth, dividends, and residual value on wind-up. Before an estate freeze, the freezor typically holds common shares of the operating or holding company; after the freeze, the freezor surrenders those common shares in exchange for fixed-value preferred shares, and new common (growth) shares are issued to the next generation or a family trust. The freeze converts the freezor's unlimited growth participation into a capped preferred share interest, fixing the future tax liability.

A tax rule that treats a taxpayer as having sold property at fair market value even though no actual sale occurred. Happens at death (subsection 70(5) for individuals) and every 21 years (subsection 104(4) for trusts). The deemed disposition at death is the central tax event that makes estate freeze planning necessary.

A corporate reorganization that locks in ("freezes") the current value of a business or investment portfolio in preferred shares held by the original owner and transfers all future growth to the next generation through new common shares. Implemented using Section 85 or Section 86 of the ITA. The freeze converts uncertain future growth into a fixed, known tax liability.

The highest price, expressed in money, that a property would bring in an open and unrestricted market between a willing buyer and a willing seller, both fully informed and acting independently. This is a hypothetical standard — for private company shares, no actual market exists, which is why a professional valuator is needed. FMV is the foundation of every estate freeze.

A trust — typically an inter vivos discretionary trust — whose beneficiaries are the members of a single family, most commonly the freezor's children and grandchildren (and sometimes the spouse and the freezor themselves). In an estate freeze, the family trust holds the new common (growth) shares, enabling LCGE multiplication across beneficiaries and allowing tax-efficient income sprinkling under the TOSI exceptions. The trust is subject to the 21-year deemed disposition rule, which makes wind-up or rollout planning essential. "Family trust" is a descriptive label, not a distinct legal category — the underlying vehicle is an inter vivos discretionary trust created by a deed of settlement.

The business owner or shareholder who implements the estate freeze by exchanging their common shares for fixed-value preferred shares. The freezor's goal is to shift future appreciation to the next generation while retaining control and (usually) access to the existing value through preferred share attributes like retraction rights and dividends.

New common shares issued to the next generation (or a family trust) as part of an estate freeze. They have nominal value at issuance — typically $1 per share or less — but capture all future appreciation in the company's value above the frozen amount. The entire purpose of the freeze is to direct growth into these shares.

A dividend right that is forfeited if not declared by the board of directors in a given year. Preferred shares in an estate freeze are often designed with non-cumulative dividends, giving the board flexibility to manage cash flow. Contrast with cumulative dividends, which accumulate as arrears and must be paid before any dividends can be declared on common shares.

Fixed-value, non-growth shares received by the freezor in an estate freeze. Typically voting, redeemable, and retractable, with a fixed redemption value equal to the FMV of the original common shares at the freeze date. Their value is "frozen" — they do not participate in future growth.

Shares that can be redeemed at the holder's option (the shareholder demands redemption), as opposed to redeemable shares which can only be redeemed at the corporation's option (the board decides). Preferred shares in a wasting freeze should always be retractable so the freezor can control the timing and amount of periodic redemptions for retirement income, without depending on the board's willingness to act.

A provision that includes in a shareholder's income the value of any benefit conferred on them by a corporation. In the estate freeze context, if the preferred share redemption value does not match the FMV of the common shares given up, the CRA may assess a benefit conferral — either to the freezor (if the preferred shares are overvalued) or to the growth share recipients (if undervalued).

A deemed disposition that occurs when a Canadian resident ceases to be a resident of Canada, triggering capital gains on most property as if it had been sold at FMV on the date of departure. Relevant for estate freezes when the freezor, a trust beneficiary, or a family member emigrates — the departure can accelerate the tax that the freeze was designed to defer.

An addition to the General Anti-Avoidance Rule effective June 2024, requiring that a transaction have genuine economic substance — meaning real economic effects or purpose beyond the tax benefit — to avoid being considered abusive. Raises the bar for aggressive estate freeze variations, though standard freezes with legitimate succession objectives are well within the safe zone.

A provision allowing tax-deferred conversion of shares of one class into shares of another class of the same corporation, where the conversion right is provided for in the corporate articles. No election filing is required and no deemed disposition occurs if the FMV of the new shares equals the FMV of the old shares. Less commonly used than Section 85 or Section 86, but can be the simplest freeze mechanism when the articles are properly drafted — the conversion is automatic and requires no Form T2057.

An anti-avoidance rule that recharacterizes an inter-corporate dividend as a capital gain when the dividend is part of a transaction that significantly reduces a capital gain on shares. Critical for holding company structures and corporate reorganizations connected to estate freezes. The "safe income on hand" concept determines how much dividend can flow between related companies without triggering this rule.

A provision allowing the tax-deferred transfer of capital property to a spouse or common-law partner (or a spousal trust). The property transfers at its ACB, deferring any capital gain until the recipient spouse disposes of it or dies. Used in estate freeze planning to coordinate with the spousal rollover at death under subsection 70(6).

Rules that attribute income (section 74.1) and capital gains (section 74.2) back to the transferor when property is transferred or loaned to a spouse or related minor (under 18). These rules are the reason estate freezes use corporate structures and trusts rather than simple gift transfers — to avoid income being taxed back in the transferor's hands.

An anti-avoidance rule that deems interest income to the transferor when property is transferred to a corporation at less than FMV and a "designated person" (spouse, minor child, minor niece or nephew) can benefit from the transferred property. A properly structured estate freeze at FMV, with consideration equal to the FMV of shares exchanged, is generally designed to avoid triggering this rule.

A provision that allows a loan to a spouse, trust, or related minor to avoid triggering the attribution rules, provided the loan bears interest at least equal to the CRA prescribed rate at the time the loan is made, and the interest is actually paid within 30 days of each year-end. The prescribed-rate loan strategy is a common complement or alternative to an estate freeze.

A rule that attributes all income and gains from trust property back to the person who contributed the property, if that property can revert to the contributor or if the contributor can determine the allocation of trust income or capital. This is why the settlor of an estate freeze trust should always be an arm's-length person who is not a beneficiary.

An anti-avoidance rule targeting "surplus stripping" — the extraction of corporate surplus as a tax-free capital gain rather than a taxable dividend. Applies when shares of a corporation are transferred to a non-arm's-length corporation for non-share consideration exceeding the greater of PUC and a "modified ACB" that strips out previous LCGE claims. Critical when implementing intergenerational transfers and holding company structures.

A provision allowing the tax-deferred transfer of eligible property (including shares) to a Canadian corporation in exchange for at least one share. Requires a joint election filed on Form T2057. The transferor chooses an "elected amount" that determines the tax cost of the shares received. This is the most common method for implementing an estate freeze when crystallization of the LCGE is desired, because the elected amount can be set between the ACB and FMV.

A provision allowing the tax-deferred exchange of all shares of a particular class for shares of a new class of the same corporation. No election filing is required — the rollover is automatic if the conditions are met. Simpler than Section 85 but does not allow LCGE crystallization at the time of the freeze, because there is no elected amount mechanism.

The rule that deems a trust to have disposed of all its capital property at fair market value every 21 years, triggering capital gains tax as if the property were sold. This is the single most important planning constraint for family trusts used in estate freezes, because it sets a hard deadline for distributing property out of the trust or paying the resulting tax.

The provision creating the LCGE. Subsection 110.6(2.1) provides the exemption for qualified small business corporation shares; subsection 110.6(2) covers qualified farm or fishing property.

A rule that reduces a Canadian-controlled private corporation's small business deduction when the associated group's adjusted aggregate investment income (AAII) exceeds $50,000. For every $1 above $50,000, $5 of the business limit is clawed back. The SBD is fully eliminated when AAII reaches $150,000. Important for holding company structures connected to estate freezes.

A post-mortem planning provision that allows the estate to elect to carry back capital losses realized in the estate's first taxation year to the deceased's terminal return. Used in pipeline strategies and other post-mortem techniques to offset the deemed capital gain at death.

Canada's broadest anti-avoidance rule, which can deny the tax benefit of any transaction that (a) results in a tax benefit, (b) is an avoidance transaction (not arranged primarily for bona fide purposes other than obtaining a tax benefit), and (c) is abusive, having regard to the provisions of the ITA read as a whole. Amendments effective June 2024 added an "economic substance" requirement. Estate freezes themselves are well-established and not vulnerable to GAAR, but aggressive variations may be.

A U.S. Internal Revenue Code provision that pulls transferred property back into the transferor's U.S. estate for estate tax purposes if the transferor retained the right to use, possess, or enjoy the property, or retained the right to designate who may possess or enjoy it. Relevant for Canadian estate freezes when the freezor is also a U.S. person (citizen, green card holder, or tax resident): if the freezor serves as trustee of the family trust with discretion over distributions, Section 2036 may include all trust assets in the freezor's U.S. estate — negating the freeze from a U.S. estate tax perspective.

A U.S. tax classification for a foreign corporation that meets either the income test (75% or more of gross income is passive) or the asset test (50% or more of assets produce or are held to produce passive income). A Canadian holding company used in an estate freeze — particularly one that holds passive investments — will typically be a PFIC. U.S. shareholders of a PFIC face punitive tax treatment: excess distributions and gains are allocated across the holding period and taxed at the highest historical marginal rate plus an interest charge. U.S. persons involved in Canadian estate freezes must consider PFIC elections (QEF or mark-to-market) to mitigate the impact.

The lifetime exemption from U.S. federal estate and gift tax — $15 million per person for 2026, made permanent by the One Big Beautiful Bill Act (July 2025). A married couple can shelter $30 million combined. For Canadian residents who are also U.S. persons, the unified credit offsets the U.S. estate tax that would otherwise apply to worldwide assets at death. The Canada-U.S. Tax Treaty (Article XXIX B) provides a pro rata credit for Canadian residents who are not U.S. citizens but whose estates include U.S.-situs property.

A divisive reorganization under section 55 of the ITA that splits a corporation's assets among two or more shareholder groups without triggering immediate tax. Named for the "butterfly" pattern of share exchanges and asset transfers. Commonly used when co-owners of a business want to go their separate ways — each shareholder ends up with their proportionate share of the corporation's assets in a separate corporation. In the estate freeze context, a butterfly may be used to divide a multi-branch family business before implementing separate freezes for each branch, or to separate passive investments from active business assets for QSBC qualification purposes.

The process of deliberately triggering a capital gain at the time of an estate freeze in order to use the Lifetime Capital Gains Exemption. Implemented through a Section 85 rollover with the elected amount set above the ACB but within the LCGE limit. Increases the ACB of the preferred shares and reduces the future tax liability at death.

A corporate restructuring that separates a single corporation into two or more corporations — the opposite of an amalgamation. The butterfly transaction (above) is the most common tax-deferred divisive reorganization. Other forms include wind-ups and asset transfers under section 85. In estate freeze planning, divisive reorganizations are used to isolate passive assets, separate business divisions among family branches, or purify a corporation for QSBC qualification before a freeze or sale.

Implementing a freeze two to five years before a planned business sale to multiply the LCGE across family members. The freeze shifts future appreciation (including the sale premium) to growth shares held by multiple family members, each of whom claims their own LCGE on the eventual sale. Requires the 24-month QSBC holding period to be satisfied before the sale closes.

A variation on the standard estate freeze where the freezor is named as a capital beneficiary of the family trust that holds the growth shares. This provides a safety net — if circumstances change, the trustee can allocate some of the post-freeze growth back to the freezor. More flexible than a pure freeze, but requires careful drafting to avoid attribution issues.

A U.S. estate planning technique that is the functional equivalent of a Canadian estate freeze. The grantor transfers assets to an irrevocable trust while retaining the right to receive an annuity for a fixed period. At the end of the term, remaining assets pass to the beneficiaries. If the assets appreciate faster than the IRS assumed rate (the Section 7520 rate), the excess growth transfers to the beneficiaries free of gift and estate tax. Canadian practitioners encounter GRATs when advising clients with U.S. connections or when working with U.S. cross-border advisors.

A U.S. estate planning technique where a trust is structured to be "defective" for income tax purposes (so the grantor pays income tax on trust income) but treated as a completed gift for estate tax purposes (so the assets are excluded from the grantor's estate). The grantor's payment of the trust's income taxes effectively transfers additional wealth to the beneficiaries tax-free. Like GRATs, IDGTs are relevant for Canadian freeze planning when U.S. persons are involved.

Legislative amendments allowing qualifying transfers of small business shares or farm/fishing property to a child or grandchild's corporation to be treated as capital gains (eligible for the LCGE) rather than deemed dividends under section 84.1. Strict conditions apply, including a three- or five-year transfer period and independent valuations. Amendments enacted in 2024 replaced the original Bill C-208 framework.

A tax exemption under subsection 110.6(2.1) allowing individuals to shelter capital gains on the disposition of qualified small business corporation shares from tax — currently up to $1,250,000 (effective June 25, 2024, indexed to $1,275,000 for 2026). One of the most powerful tools in estate freeze planning because it can be multiplied across multiple family members, each of whom claims their own exemption.

A strategy using an estate freeze and family trust to spread capital gains across multiple family members — each of whom can claim their own LCGE. A family of five, for example, could shelter over $6 million in capital gains from tax. This is the primary income tax benefit of combining an estate freeze with a discretionary trust.

A post-mortem planning technique where the deceased's estate sells the deceased's shares to a new holding company in exchange for a promissory note, then the corporation uses retained earnings to repay the note over one to two years. Avoids the double taxation that would otherwise result from the deemed disposition at death (capital gain) followed by distribution of corporate surplus (dividend). Must be implemented carefully to avoid CRA challenge under section 84.1 or GAAR.

The suite of tax planning techniques available after the freezor's death to minimize the combined tax burden from the deemed disposition at death and the subsequent extraction of corporate surplus. Key strategies include the pipeline, the subsection 164(6) loss carryback, and the spousal rollover under subsection 70(6).

An income-splitting technique where a higher-income individual lends money to a family trust (or spouse) at the CRA's prescribed interest rate. The trust invests the funds and earns returns above the prescribed rate; the spread is effectively split among the trust beneficiaries at lower tax rates. The prescribed rate is locked at the date the loan is made — once locked, it does not change even if rates rise later.

A restructuring performed before a business sale to maximize tax efficiency — typically involving removing passive assets from the operating company to ensure the shares qualify as QSBC shares (the "90% active business asset" test) so the LCGE can be claimed on the sale. Often combined with a freeze-and-sell strategy to multiply the LCGE across family members.

A standard provision in estate freeze documents allowing the parties to adjust the value of the preferred shares retroactively if the CRA determines that the FMV used at the time of the freeze was different from the actual FMV. Provides a safety net against reassessment — the CRA has accepted that a bona fide PAC, backed by an independent valuation, is effective. The CRA's requirements for PAC validity are set out in Interpretation Bulletin IT-169.

The process of resetting an estate freeze at a lower value when the business has declined in value since the original freeze. The freezor exchanges the existing preferred shares for new preferred shares with a lower redemption value, reducing the future tax liability at death. The CRA generally accepts a refreeze when the decline is genuine and supported by a current valuation.

A freeze technique for real property under section 43.1 of the ITA, where the owner transfers a remainder interest in real property to the next generation while retaining a life interest (the right to use and occupy the property for life). The ITA splits the property's FMV between the life interest and the remainder interest using prescribed actuarial factors based on the life tenant's age. Future appreciation accrues to the remainder holder. Most commonly used for farm properties, cottages, and real estate holdings where the owner does not operate through a corporation.

An alternative freeze method where the operating company transfers its assets to a newly created subsidiary, rather than the freezor transferring shares to the company. The operating company retains preferred shares of the subsidiary, and new common shares of the subsidiary go to the next generation. Preserves the corporate identity of the original company.

An alternative freeze method where the corporation declares a stock dividend of preferred shares to the freezor, rather than the freezor exchanging their common shares for preferred shares. Avoids triggering corporate attribution under subsection 74.4(2) because no property is "transferred" to the corporation, but does not allow LCGE crystallization because no disposition occurs.

A government-issued production right in supply-managed agricultural commodities (dairy, poultry, eggs). Quota is a valuable intangible asset that must be included in the valuation of a farming operation for estate freeze purposes. Quota values vary by province and commodity and are determined by reference to provincial quota exchange markets. Transfers of quota within a family may qualify for the intergenerational farm property rollover.

The process of fully unwinding an estate freeze, returning growth potential to the freezor. The freezor exchanges preferred shares back for common shares, or the growth shares held by family members are acquired by the freezor. May be appropriate when the original freeze no longer serves its planning purpose — for example, if the next generation is no longer involved in the business.

A freeze combined with a systematic program of redeeming (retracting) the freezor's preferred shares over time, providing regular retirement income while gradually reducing the value of the freezor's estate. The periodic redemptions create deemed dividends to the extent the redemption amount exceeds the paid-up capital of the shares redeemed.

An asset-based valuation approach that starts with the company's balance sheet and adjusts each asset and liability to fair market value. The primary valuation method for investment holding companies and real estate holding companies, where value is driven by the underlying assets rather than earnings.

The rate of return used in the capitalized cash flow method to convert a single year of normalized earnings into an enterprise value. Calculated as the discount rate minus the long-term expected growth rate. A lower cap rate produces a higher value; a higher cap rate produces a lower value. The CRA routinely scrutinizes the cap rate in freeze valuations.

The most commonly used valuation method for stable, profitable private businesses in estate freeze contexts. Divides a single, normalized level of sustainable after-tax cash flow by a capitalization rate to arrive at enterprise value. Works best for mature businesses with predictable earnings.

A professional accredited by the Canadian Institute of Chartered Business Valuators (CICBV) to value businesses and business interests. The CICBV standards recognize three levels of valuation service: comprehensive, estimate, and calculation. For the freeze itself, a comprehensive valuation by an independent CBV is the standard recommendation.

The highest level of valuation service under CICBV standards. The valuator performs a thorough analysis without scope restrictions, producing the most defensible report. This is the recommended standard for estate freeze valuations. Cost typically ranges from $15,000 to $50,000 or more, depending on complexity.

A valuation adjustment (typically 15% to 35%) reflecting the inability to sell private company shares on a public market. Whether a DLOM applies in an estate freeze context is debated — the CRA has historically been reluctant to accept large DLOMs on freeze valuations, particularly for controlling interests.

A valuation method that projects expected cash flows over a discrete period (typically 5 to 10 years), then adds a terminal value. Each year's cash flow is discounted to present value. More appropriate than CCF for businesses with changing growth rates, but more sensitive to assumptions and therefore more vulnerable to challenge.

Goodwill that is attributable to the business itself — its brand, systems, processes, customer relationships, and reputation — rather than to the personal efforts of the owner. Enterprise goodwill transfers with the business and is included in the freeze value.

A valuation approach embedded in a shareholder agreement that uses a predetermined formula (e.g., a multiple of EBITDA or book value) to set the price for share transactions such as buyouts on death, disability, or retirement. Formula valuations provide certainty and avoid the cost of a formal valuation for each triggering event, but they can diverge significantly from actual FMV over time. For estate freeze purposes, the CRA will assess tax based on actual FMV, not the formula price — so a price adjustment clause and periodic formal valuations remain important safeguards.

A valuation adjustment (typically 10% to 30%) applied to shares representing a minority interest (less than 50% of votes) to reflect the lack of control. In most estate freezes, no minority discount applies to the freeze valuation because the freezor holds 100% of the shares. However, it may apply to individual growth shares after the freeze.

Adjustments made to a company's historical financial results to remove items that are non-recurring, non-arm's-length, or not reflective of sustainable earning power. Common adjustments include owner compensation, related-party transactions, one-time items, and discretionary personal expenses. Normalization is performed before applying any valuation method.

Goodwill attributable to the owner's personal relationships, reputation, skills, and expertise. If the owner leaves, this value goes with them. A valuator must carefully assess how much goodwill is personal versus enterprise, because overstating enterprise goodwill inflates the freeze value and understating it may invite a CRA reassessment. Particularly important for professional corporations and owner-operated businesses.

Assets not required for the business's operations — excess cash, investment portfolios, non-operating real estate. Valued separately at their own FMV and added to the operating value. Critically important for QSBC qualification, because redundant assets are passive assets that may disqualify shares from LCGE treatment if they exceed the 10% threshold.

The rule under subsection 104(4) that deems a trust to have disposed of all its capital property at fair market value every 21 years, triggering capital gains tax. This creates a hard planning horizon for estate freeze trusts: before the 21st anniversary, the trust must either distribute the growth shares to beneficiaries (potentially triggering TOSI), wind up, or pay the resulting tax bill.

A trust available to individuals aged 65 or older that allows property to be transferred on a tax-deferred basis while the individual retains the right to all income and capital during their lifetime. Taxed at the highest marginal rate on retained income. Used primarily for probate avoidance — property in the trust bypasses the estate and is not subject to estate administration tax.

A trust arrangement where the trustee holds legal title to property but has no independent discretion — they act solely on the instructions of the beneficial owner. Subject to new annual reporting requirements. A bare trust does not provide the income-splitting or asset-protection benefits of a discretionary trust.

A person entitled to benefit from a trust, either by receiving income, capital, or both. In a discretionary estate freeze trust, beneficiaries typically include the freezor's children and possibly grandchildren, and may include the freezor's spouse (subject to attribution considerations) and the freezor themselves (in a gel structure).

Under subsection 74.4(2), a spouse, common-law partner, minor child, or minor niece or nephew of the transferor. If a designated person can benefit from property transferred to a corporation, the corporate attribution rules may apply to deem interest income to the transferor.

A trust where the trustees have the power to decide how much income and capital each beneficiary receives, and when. The most common type of trust used in estate freezes because it provides maximum flexibility for income splitting and responding to changing family circumstances.

Ontario's probate fee, calculated at approximately 1.5% on estate assets exceeding $50,000. One of the motivations for estate freeze planning — by locking value in preferred shares that may be subject to a secondary (non-probate) will, and shifting growth to a trust, the value subject to EAT at death can be significantly reduced.

A testamentary trust that qualifies for graduated tax rates (the same marginal rate brackets as an individual) for up to 36 months after the individual's death. Only one GRE can exist per deceased individual. The GRE provides planning flexibility in the first three years after the freezor's death, including the ability to choose a non-calendar taxation year.

A legal principle (from the Ontario case Henson v. Ontario) establishing that a properly drafted discretionary trust is not considered the beneficiary's asset for government benefits purposes. Important when a beneficiary of an estate freeze trust has a disability and receives government support — a Henson trust structure allows distributions without disqualifying the beneficiary.

A trust created during the settlor's lifetime, as opposed to a testamentary trust created by a will. The standard type used in estate freezes. Taxed at the highest marginal rate on any income retained in the trust, which creates a strong incentive to distribute income to beneficiaries annually.

Similar to an alter ego trust, but available to couples. Both the individual and their spouse or common-law partner must be entitled to all income and capital during their lifetimes. Available to individuals aged 65 or older. The deemed disposition is deferred until the death of the survivor.

The court-supervised process of validating a will and granting authority to the estate trustee to administer the estate. In Ontario, probate triggers the Estate Administration Tax. Assets held in trusts, jointly owned property, and assets with designated beneficiaries (like life insurance) bypass probate.

The person who creates a trust by contributing initial property (typically a nominal amount, such as $1). In an estate freeze trust, the settlor should be an arm's-length person who is not a beneficiary, to avoid triggering the reversionary trust rule under subsection 75(2). The freezor should never be the settlor.

A trust created by a person's will, taking effect at death. Not used in estate freezes (which use inter vivos trusts), but relevant for broader estate planning. A testamentary trust that qualifies as a GRE receives graduated rate treatment for up to 36 months.

The person or persons who hold legal title to trust property and manage it for the benefit of the beneficiaries. Trustees have a fiduciary duty to act in the beneficiaries' best interests, follow the terms of the trust deed, and exercise their powers prudently. In an estate freeze trust, careful trustee selection — balancing family involvement with independent judgment — is essential.

A corporation that is resident in Canada, is a private corporation, and is not controlled directly or indirectly by non-residents or public corporations. CCPC status provides access to the small business deduction, the capital dividend account, and the refundable tax mechanism on passive income. Most estate freeze target companies are CCPCs.

A corporation whose primary purpose is to hold shares of other corporations, investments, or real estate rather than to carry on an active business. In estate freeze planning, a holding company is often used to hold the growth shares of the operating company, provide creditor protection, facilitate investment management, and (in the professional corporation context) work around regulatory restrictions on trust shareholding.

The corporation that carries on the active business. In a standard estate freeze, the opco is the company whose shares are being frozen. Distinguishing the opco from any associated holding company or investment company is important for QSBC qualification, small business deduction calculations, and AAII thresholds.

A corporation established under a provincial professional regulatory body's rules, allowing dentists, doctors, lawyers, accountants, and other regulated professionals to incorporate their practice. Subject to unique ownership and share transfer restrictions that affect estate freeze structuring — particularly around who can hold shares and whether trusts are permitted shareholders.

A measure of a CCPC's passive investment income used to determine the reduction in its small business deduction under subsection 125(5.1). When a corporate group's AAII exceeds $50,000, the small business deduction is progressively reduced and fully eliminated at $150,000 of AAII. Important for holding company structures because passive investments in associated corporations are pooled for this calculation.

A parallel tax calculation that ensures higher-income individuals pay at least a minimum amount of tax, even when they claim large deductions or exemptions. The post-2024 reform sets the federal AMT rate at 20.5% and includes 100% of capital gains (compared to 50% under the regular system). LCGE crystallization can trigger AMT, although the AMT paid is recoverable as a credit over the following seven years.

The tax depreciation deduction available for capital assets used in a business (buildings, equipment, vehicles). On sale, the CCA previously claimed may be recaptured as ordinary income. Relevant to estate freezes involving real estate holding companies or capital-intensive businesses.

A notional account that tracks the non-taxable portion of capital gains, life insurance death benefit proceeds (net of ACB), and certain other amounts received by a private corporation. Allows tax-free capital dividends to be paid to shareholders. In estate freeze planning, life insurance proceeds credited to the CDA can fund the redemption of the freezor's preferred shares on a tax-efficient basis.

The accumulated retained earnings and tax accounts (CDA, GRIP, LRIP, RDTOH) within a corporation that determine the tax consequences of distributing funds to shareholders. In the estate freeze context, the nature and amount of corporate surplus determines whether dividends are eligible or non-eligible, whether capital dividends can be paid tax-free, and ultimately how much tax the freezor or their estate will pay when the preferred shares are redeemed. Proper surplus planning is essential for post-mortem strategies and wasting freeze structures.

A tax concept where certain transactions are treated as dividends for tax purposes, even though no formal dividend was declared. Most commonly arises when a corporation redeems shares — the excess of the redemption amount over the paid-up capital of the shares is treated as a deemed dividend. In a wasting freeze, each periodic redemption of preferred shares creates a deemed dividend to the extent redemption exceeds PUC.

A dividend paid by a CCPC out of income that was taxed at the general corporate rate (not the small business rate), or by a public corporation. Eligible dividends receive a more favourable gross-up and dividend tax credit, resulting in a lower personal tax rate than non-eligible dividends. Relevant for retirement income planning with preferred share dividends.

Income that qualifies for the pension income splitting election after age 65. Includes CPP retirement benefits, income from registered pension plans (RPPs), and RRIF withdrawals. Critically, dividends from a corporation do not qualify as eligible pension income and cannot be split. Up to 50% of eligible pension income can be allocated to a spouse on the joint tax return, reducing the couple's combined tax. An important consideration for freeze planning at age 65 and beyond.

A trust that holds shares of a Canadian-controlled private corporation for the benefit of the company's employees. Introduced under Bill C-59 (June 25, 2024) with a $10 million lifetime capital gains exemption for CCPC share sales to an EOT. Requires the CCPC to have at least 5 full-time employees and active business income. The EOT framework is new and CRA guidance is still evolving. Often combined with an estate freeze where the freezor retains preferred shares and common shares are issued to the EOT over time.

The component of RDTOH that tracks refundable tax on Canadian eligible dividends received by a CCPC from connected corporations. The ERDTOH balance is refunded only when the corporation pays eligible dividends. The ERDTOH/NERDTOH distinction (introduced in 2019) ensures that refundable taxes on eligible dividends are only recovered through eligible dividend payments, preventing the conversion of dividend income into a more favourably taxed form.

An exception to the tax on split income. Income from a business is excluded from TOSI if the individual was actively engaged in the business on a regular, continuous, and substantial basis in the current year or in any five prior taxation years. The threshold is generally interpreted as approximately 20 hours per week. An important planning consideration for family members receiving dividends from estate freeze structures.

Another TOSI exception. Dividends on shares are excluded from TOSI if the individual directly owns shares representing at least 10% of the votes and 10% of the FMV of the corporation. Does not apply to shares held through a trust — only direct ownership qualifies.

A notional account that tracks income taxed at the general corporate rate (not the small business rate) in a CCPC. The GRIP balance determines how much the corporation can pay out as eligible dividends, which receive the more favourable gross-up and dividend tax credit at the shareholder level. In estate freeze structures, the GRIP balance matters for planning the most tax-efficient dividend type when paying dividends on preferred shares or extracting corporate surplus.

The principle that the Canadian tax system is designed so that the total tax on corporate income — first at the corporate level and then at the personal level when distributed as a dividend — is roughly the same as if the income had been earned directly by the individual. Integration is imperfect in practice, and the gap between actual and theoretical integration rates influences whether income should be retained in a corporation or distributed.

A notional account that tracks income taxed at the small business rate in a CCPC. The LRIP balance must be reduced to nil (by paying non-eligible dividends) before the corporation can pay eligible dividends without triggering the Part III.1 tax. The LRIP ensures that income taxed at the lower small business rate is distributed as non-eligible dividends (with the lower gross-up and credit), maintaining the integration principle.

A concept under section 84.1 that reduces the adjusted cost base of shares by the amount of any LCGE previously claimed on those shares (or shares substituted for them). Prevents a taxpayer from using the LCGE to shelter a gain and then extracting the same value as tax-free return of capital through a holding company transfer.

The component of RDTOH that tracks refundable tax on passive investment income other than Canadian eligible dividends — specifically interest income, foreign income, rental income, and taxable capital gains. The NERDTOH balance is refunded when the corporation pays non-eligible dividends. If the ERDTOH balance is nil, a NERDTOH refund can also be triggered by paying eligible dividends. The ERDTOH/NERDTOH split (introduced in 2019) prevents a CCPC from converting passive income into eligible dividends to access the higher dividend tax credit.

A dividend paid by a CCPC out of income that was taxed at the small business rate. Subject to a lower gross-up and dividend tax credit than eligible dividends, resulting in a higher personal tax rate. Most dividends from small business CCPCs are non-eligible.

A recovery tax of 15% on OAS benefits when the recipient's net income exceeds approximately $91,000 (indexed annually). Preferred share redemptions and deemed dividends from a wasting freeze can push income above this threshold, reducing or eliminating OAS payments. An important consideration for freeze planning at age 65 and beyond.

The amount of capital contributed to a corporation in exchange for shares, as computed under the ITA. On redemption, the excess of the redemption amount over PUC is treated as a deemed dividend. On sale, PUC reduces proceeds and therefore the capital gain. In an estate freeze, the PUC of the new preferred shares is typically set equal to the PUC of the old common shares exchanged.

Property used principally in farming or fishing in Canada, eligible for an enhanced LCGE under subsection 110.6(2) — currently $1,250,000, indexed. The qualifying tests differ from QSBC shares: the property must have been used in the farming or fishing business by the taxpayer, their spouse, or their children for a minimum period. Estate freezes for farming operations often involve both QSBC shares and qualified farm property, each with its own LCGE claim.

Shares that meet specific tests under subsection 110.6(1) of the ITA, entitling the holder to claim the LCGE on disposition. The three main tests are: (1) the shares must be of a small business corporation at the time of disposition (90% active business assets), (2) throughout the 24 months before disposition, no one other than the holder or a related person owned the shares, and (3) throughout the same 24 months, more than 50% of the corporation's assets were used in an active business.

A notional account tracking refundable taxes paid by a CCPC on passive investment income. When the corporation pays taxable dividends, a portion of the RDTOH is refunded. Split into Eligible RDTOH and Non-Eligible RDTOH after the 2019 reforms. Relevant for holding companies holding investments alongside estate freeze structures.

The after-tax retained earnings accumulated on a specific class of shares. Under subsection 55(2), an inter-corporate dividend is protected from recharacterization as a capital gain only to the extent of the safe income attributable to the shares on which the dividend is paid. A critical calculation for any corporate reorganization involving inter-corporate dividends, including pre-sale reorganizations connected to estate freezes.

A tax rate reduction for active business income earned by a CCPC, reducing the combined federal-provincial corporate tax rate to approximately 12.2% in Ontario (dropping to 11.2% effective July 1, 2026) (compared to the general rate of approximately 26.5%). The SBD is available on the first $500,000 of active business income, subject to clawback based on taxable capital and AAII thresholds.

Rules under section 120.4 of the ITA that tax certain types of income — typically dividends from private corporations — at the highest marginal rate when paid to family members who are not meaningfully contributing to the business. The "excluded business" and "excluded shares" exceptions are the primary ways dividends from estate freeze structures can be received by family members without triggering TOSI.

The Ontario court document (commonly known as "probate") confirming the estate trustee's authority to administer the estate. Required for assets held in the deceased's name alone (banks, land registry). A secondary will for private company shares can avoid the need for a certificate covering those shares, saving the Estate Administration Tax on their value.

A written document establishing that shares transferred to a family member are a gift, not a sale. In the estate freeze context, a deed of gift for growth shares transferred to children can help establish those shares as "excluded property" under provincial family law, protecting them from division on the child's future separation or divorce.

A legally binding agreement between spouses or common-law partners — including marriage contracts (prenuptial or postnuptial agreements), cohabitation agreements, and separation agreements — that can override the default property-sharing rules under provincial family law. In estate freeze planning, a domestic contract is used to protect growth shares from equalization on the child's separation or divorce. When a child receives growth shares (whether directly or through a trust), a well-drafted domestic contract can ensure those shares remain excluded property and are not subject to division. Domestic contracts are governed by provincial legislation (e.g., Ontario's Family Law Act, Part IV).

A shareholder agreement provision allowing a majority shareholder to compel minority shareholders to participate in a sale of the company on the same terms. The mirror image of tag-along rights. In estate freeze structures, drag-along rights ensure that if the family decides to sell, all shareholders — including trusts holding growth shares — can be brought into the transaction.

Under Ontario's Family Law Act, the payment from the spouse with the higher net family property to the spouse with the lower net family property on separation or death. Growth shares issued in an estate freeze may be included in the child's net family property on separation unless properly documented as excluded property (typically through a deed of gift and domestic contract).

Under Ontario's Family Law Act, property that is excluded from the net family property calculation on separation — including gifts and inheritances received during the marriage, provided they have not been commingled with family assets. Growth shares received by a child as a gift (documented with a deed of gift) may qualify as excluded property, protecting them from division if the child's marriage breaks down.

Under Quebec's Civil Code, the automatic division regime that applies to married spouses on divorce, separation from bed and board, or death — regardless of the matrimonial regime chosen. Family patrimony includes the family residences, household furnishings, motor vehicles used for family travel, and the accumulated value of certain retirement plans (RRSPs, pension plans). Importantly, shares in a private corporation — including estate freeze growth shares — are generally not part of the family patrimony, but may be subject to the matrimonial regime (e.g., partnership of acquests). Quebec practitioners must consider both layers when structuring freeze protections.

A provincial tax triggered when real property is transferred, including transfers into a corporation. In Ontario, LTT applies at graduated rates up to 2.5% (plus the City of Toronto's additional LTT where applicable). Importantly, LTT is not deferred by a Section 85 rollover — transferring real estate into a corporation as part of an estate freeze triggers LTT on the FMV of the property, which can represent a significant upfront cost.

A non-binding document prepared by the freezor setting out their intentions and guidance for trustees, executors, and family members regarding the management of the freeze structure, distribution of trust assets, and succession of the business. While not legally enforceable, a well-drafted letter of wishes provides important context and helps prevent family disputes after the freezor's incapacity or death.

A planning technique using two wills: the primary will covers assets that require probate (real estate, bank accounts), and the secondary will covers assets that do not (private company shares, personal effects). The secondary will assets bypass the probate process and the Estate Administration Tax. Commonly used alongside estate freezes to reduce probate costs.

A formal written challenge to a CRA reassessment, which must be filed within 90 days of the date on the Notice of Reassessment. Filing an objection is the first step in the tax dispute process and a prerequisite to appealing to the Tax Court of Canada. In estate freeze disputes, objections most commonly involve disagreements over the FMV used in the freeze, the application of section 84.1, or the denial of the LCGE.

A transaction that must be reported to the CRA under section 237.4 of the ITA if it is the same as, or substantially similar to, a transaction designated by the Minister of Finance. The designated list targets specific aggressive tax structures. A standard estate freeze is not currently on the designated list. Failure to report a notifiable transaction results in penalties of $500 per week, up to a maximum that increases with the tax benefit involved.

A transaction that must be disclosed to the CRA under section 237.3 of the ITA if it meets certain hallmarks: a confidentiality condition (the advisor requires the tax treatment to be kept confidential), contractual protection (the advisor provides a fee refund or insurance if the tax benefit is denied), or contingent fees (the advisor's fee depends on the tax outcome). A standard estate freeze implemented by independent advisors at fixed fees generally does not trigger these hallmarks. Failure to report carries penalties starting at $500 per week.

A contract among the shareholders of a corporation governing their rights and obligations — including what happens to shares on death, disability, retirement, or divorce. In the estate freeze context, the shareholder agreement coordinates with the freeze structure: mandatory buyout or retraction provisions, funding mechanisms (often life insurance), and restrictions on share transfer.

A buy-sell mechanism in a shareholder agreement where one shareholder offers to buy the other's shares at a specified price, and the recipient must either accept the offer and sell, or buy the offeror's shares at the same price. Ensures fairness because the offeror must set a price they would be willing to accept in either direction. Common in estate freeze structures with multiple family branches or outside shareholders.

A shareholder agreement provision allowing minority shareholders to participate in a sale if a majority shareholder sells their shares, on the same terms and at the same price per share. Protects minority growth share holders (often family trusts or younger-generation shareholders) from being left behind in a transaction negotiated by the controlling shareholder.

An independent federal court that hears appeals of income tax, GST/HST, and other federal tax disputes after the CRA's internal appeals process has been exhausted. The taxpayer must first file a Notice of Objection before appealing to the Tax Court. Proceedings can follow the informal procedure (for amounts under $25,000 per year) or the general procedure (for larger amounts, with full discovery and examination rights).

The final income tax return filed for a deceased individual, covering the period from January 1 to the date of death. The deemed disposition of all capital property at FMV is reported on this return, making it the return where the estate freeze's tax consequences are ultimately realized. The terminal return may also include elective returns (rights or things, business income) that can split income across multiple returns to access lower tax brackets.

British Columbia's comprehensive estates statute (in force since March 31, 2014), which modernized the province's succession law. WESA is particularly relevant for estate freeze planning because of its will-variation provisions (Part 4): a spouse or child of the deceased can apply to court to vary the will if the will does not make "adequate provision" for their proper maintenance and support. Unlike Ontario's dependant's relief legislation, WESA claims are not limited to financial dependants — an adult child with independent means can still succeed. This makes BC one of the most challenging provinces for estate freeze structures that disinherit or limit distributions to certain family members. Practitioners must consider WESA exposure when drafting wills and trust deeds for BC-connected freezes.

The right of a spouse or child under Part 4 of WESA to apply to the BC Supreme Court to change the distribution under a deceased person's will if it does not make adequate provision for the applicant. The court has broad discretion to rewrite the will. In estate freeze planning, will-variation risk means that assets passing through the freezor's will — including preferred shares — can be reallocated by the court. Assets held in an inter vivos trust generally fall outside the will and are therefore not subject to will variation, which is one of the reasons trusts are preferred over direct shareholding in BC-connected estate freezes. The application must be filed within 180 days of the grant of probate.

The cumulative net premiums paid into a life insurance policy, reduced by the net cost of pure insurance (NCPI) over time. When the death benefit is received, only the excess over the policy's ACB is credited to the CDA. The ACB of the policy is a separate concept from the ACB of shares.

The amount a permanent life insurance policy is worth if surrendered to the insurer before the insured's death. Represents the accumulated savings component of the policy. CSV is a corporate asset for valuation and QSBC purposes — large CSVs may need to be held in a separate holding company to preserve QSBC qualification of the operating company.

A life insurance policy where the corporation is both the owner and beneficiary. On the freezor's death, the death benefit is received tax-free by the corporation, credited to the capital dividend account (net of the policy's ACB), and can be distributed as a tax-free capital dividend to the estate to fund the redemption of the freeze preferred shares.

A life insurance arrangement between two or more shareholders where each shareholder's corporation owns a policy on the life of the other shareholder. On death, the surviving shareholder's corporation receives the death benefit and uses it to fund the purchase of the deceased's shares. This structure avoids the need to flow insurance proceeds between corporations and can simplify the post-mortem share redemption process in estate freeze structures with multiple shareholders.

A legal requirement that the person or entity applying for life insurance must have a financial interest in the continued life of the insured. In the estate freeze context, the corporation that owns a policy on the freezor's life has an insurable interest because it will need to fund the redemption of the freezor's preferred shares at death. Insurable interest must exist at the time the policy is issued.

A life insurance policy that covers two lives — typically a married couple — and pays the death benefit only when the second insured dies. Used in estate freeze planning when the freezor's spouse has a spousal rollover, deferring the deemed disposition (and the tax bill) until the survivor's death. JLTD premiums are significantly lower than two individual policies because the insurer pays only once, at the second death. The corporation typically owns the JLTD policy, and the death benefit funds the preferred share redemption at the survivor's death.

The annual mortality charge component of a life insurance policy, as prescribed by CRA regulation. NCPI reduces the adjusted cost basis of the policy each year, which in turn increases the amount of the death benefit that is credited to the capital dividend account on the insured's death. The NCPI calculation is based on the insured's age, sex, and policy face amount, using mortality tables prescribed by the Income Tax Regulations.