Business Succession and Estate Freeze Strategies

Introduction
Understanding business succession and estate freeze strategies is essential for entrepreneurs, family business owners, incorporated professionals and shareholders preparing for transition, retirement or intergenerational transfer. Without proactive planning, the transfer of a business can lead to excessive taxes, family disputes, loss of corporate control and liquidation of key assets. An estate freeze allows owners to lock in (“freeze”) the current value of their business and transfer future growth to children, family trusts or successors. Québec business owners must also navigate provincial succession rules and special tax considerations. This guide explains how to structure a smooth transition using business succession and estate freeze strategies that preserve wealth, reduce taxes and protect the business for future generations.

Legal and Regulatory Framework
Business succession and estate freeze strategies are governed by the Income Tax Act, Québec’s Taxation Act, corporate law, and estate planning legislation. An estate freeze typically involves exchanging common shares for fixed-value preferred shares. New common shares—representing all future growth—are then issued to children, family trusts or key successors. This locks in the owner’s taxable capital gain at today’s value.

Key rules include:
• section 86 and section 51 of the Income Tax Act (share exchange rules)
• attribution rules that govern transfers to related persons
• section 74.5 and 74.4 anti-avoidance provisions
• valuation requirements to avoid CRA challenges
• provincial requirements for Québec business succession transactions

Estate freezes are often combined with:
• family trusts
• holding company structures
• shareholder agreements
• capital dividend account planning
• purifying shares for LCGE eligibility
• intergenerational business transfer rules recently updated by Bill C-208

Understanding business succession and estate freeze strategies requires proper corporate restructuring and adherence to federal and Québec rules.

Key Court Decisions
Court rulings illustrate how business succession and estate freeze strategies must be implemented carefully. Key themes include:

• valuing shares incorrectly leads to reassessments
• freezes undertaken solely for tax avoidance may be challenged
• attribution rules may apply if the structure shifts income improperly
• lack of documentation or corporate resolutions invalidates freezes
• family disputes can arise when shareholder agreements are incomplete

One major case involved an improperly documented freeze where CRA denied LCGE claims due to inadequate active business asset tests. Québec courts issued decisions confirming the importance of valuation evidence when transferring future growth to family members. These rulings demonstrate that a well-planned estate freeze must be supported by professional valuation, legal documentation and clear business purpose.

Why CRA Targets This Issue
The CRA focuses on business succession and estate freeze strategies because these structures can shift large amounts of future wealth to family members tax-efficiently. Common CRA red flags include:

• undervalued share freezes
• aggressive income shifting to non-active family members
• improper use of family trusts
• transactions that attempt to avoid capital gains on transfers
• LCGE multiplication without proper share ownership
• misuse of Bill C-208 intergenerational transfer rules
• gaps in shareholder agreements or valuation reports

Revenu Québec also reviews estate freezes closely, particularly for valuation discrepancies and provincial LCGE eligibility. Proper planning and documentation are essential to withstand scrutiny.

Mackisen Strategy
Mackisen CPA provides a full strategic framework for business succession and estate freeze strategies. Our process includes:

• assessing whether it is the right time for a succession or freeze
• conducting full business valuations consistent with CRA and Québec standards
• planning the corporate reorganization (section 86, 51 or hybrid freezes)
• creating family trusts to hold new common shares
• purifying corporate assets to qualify for the Lifetime Capital Gains Exemption
• drafting preferred share terms and freeze structures
• coordinating with lawyers to prepare resolutions and shareholder agreements
• modelling long-term tax impact and intergenerational benefits
• applying Bill C-208 rules where appropriate for family business transfers
• ensuring flawless CRA and Revenu Québec compliance

Our approach protects business owners’ wealth and ensures a smooth transition to the next generation.

Real Client Experience
Many business owners come to Mackisen after years of operating without a succession plan. One client nearing retirement had a business worth millions but no freeze in place. Mackisen implemented an estate freeze, shifting future growth to the next generation while freezing the owner’s value for LCGE eligibility.

Another Québec family business wanted to transfer ownership to their children. We used a family trust and a section 86 share exchange, allowing a smooth intergenerational transfer under Bill C-208. A professional corporation attempted a DIY freeze without proper valuation and faced CRA challenges. Mackisen reconstructed valuations, corrected the freeze structure and avoided reassessment.

A multi-shareholder corporation needed a freeze to protect against estate tax complications. We built a holding company structure, issued freeze shares and secured long-term tax efficiency. These examples show how proper business succession and estate freeze strategies preserve business value and simplify transitions.

Common Questions
Business owners often ask whether they must be ready to retire before doing a freeze. No—freezes are often done early to lock in value for future planning. Others ask whether LCGE can be multiplied among family members. Yes, through proper freeze structures and family trusts.

Many wonder whether business succession and estate freeze strategies work for incorporated professionals. Absolutely—professional corporations frequently use freezes for retirement and tax planning. Québec owners ask whether provincial rules differ. Québec aligns with federal rules but requires separate provincial planning and filings. Understanding these questions helps owners plan effectively.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you are filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When implementing business succession and estate freeze strategies, Mackisen provides full valuations, tax structuring, legal coordination and long-term planning to preserve wealth and protect your business legacy.