Spousal Rollovers and Estate Freezes

Introduction
Understanding spousal rollovers and estate freezes is essential for families, business owners, real estate investors, and high-net-worth individuals planning generational wealth transfer. These two strategies are pillars of Canadian tax planning. A spousal rollover allows assets to transfer tax-deferred to a surviving spouse or spousal trust when someone dies. An estate freeze locks in the value of your assets today so that future growth passes to your children or a family trust at a lower tax cost. When implemented properly, these strategies reduce capital gains, minimize final taxes, protect wealth, and simplify succession. When implemented incorrectly, they trigger unexpected tax bills, CRA audits, and long-term estate complications. This guide explains everything you need to know about spousal rollovers and estate freezes in Canada.

Legal and Regulatory Framework
Spousal rollovers and estate freezes are governed by the Income Tax Act, the Excise Tax Act, capital gains rules, subsection 73(1) rollover provisions, subsection 70(6) death rollovers, section 85(1) asset transfers, trust legislation, Québec’s Taxation Act, civil code succession laws, and attribution rules. CRA and Revenu Québec review these transactions closely because they allow major tax deferral. Proper legal agreements, valuations, trust deeds, and tax elections are mandatory for compliance.

What Is a Spousal Rollover?
A spousal rollover is a provision that allows assets to transfer tax-deferred to a spouse or qualifying spousal trust when the owner dies or transfers property during life. Without a rollover, assets are deemed disposed at fair market value, triggering capital gains taxes. With a rollover, tax is deferred until the surviving spouse later sells the asset, dies, or transfers it outside the trust. Qualifying assets include real estate, investments, private corporation shares, RRSPs, RRIFs, and certain business assets. Spousal rollovers are essential for reducing tax implications at death and preserving liquidity for surviving spouses.

Requirements for a Spousal Rollover
For the rollover to apply, assets must transfer to a spouse or common-law partner who is a Canadian resident. Alternatively, assets may transfer to a spousal trust where the surviving spouse is the sole income beneficiary during their lifetime, and no one else may use the capital while the spouse is alive. If these conditions are not met, CRA will deny the rollover and tax the assets immediately. Executors must ensure legal documents are drafted correctly to secure the tax-deferred transfer.

What Assets Qualify for Spousal Rollovers?
Qualifying assets include principal residences, rental properties, investment portfolios, shares of private corporations, partnership interests, RRSPs and RRIFs (if spouse is named beneficiary), and some business assets. Transfers of registered accounts require proper beneficiary designation, or else they become fully taxable on death. Transferring private corporation shares requires valuations, section 85 rollover elections, and corporate resolutions. Québec spouses must comply with civil code succession rules and provincial rollover requirements.

RRSP and RRIF Spousal Rollovers
RRSPs and RRIFs can roll tax-free to a spouse if beneficiary designations are correct. If the estate is named instead, the transfer may still qualify if performed through the final return. If the spousal rollover is not applied correctly, the full account value becomes taxable on the deceased’s final return. Executors must carefully review account documents and ensure rollover elections are filed properly.

What Is an Estate Freeze?
An estate freeze is a transaction where the current owner of a rising-value asset “freezes” their taxable value today and transfers future growth to successors (usually children or a family trust). Estate freezes are commonly used for private corporations, real estate portfolios, and family businesses. This prevents large tax bills at death because capital gains are locked in at today’s value, and all future appreciation shifts to the next generation at lower tax brackets.

How an Estate Freeze Works
Typically, the owner exchanges their common shares for fixed-value preferred shares using a section 86 or section 51 corporate reorganization or a section 85 rollover. A family trust or children then subscribe for new common shares at nominal cost. From that point forward, all future business growth accumulates in the hands of the trust or beneficiaries, not the original owner. The estate freeze reduces taxable capital gains at death, protects the company’s liquidity, and supports intergenerational succession planning.

Benefits of Estate Freezes
Estate freezes reduce future tax liability, shift income to beneficiaries (where permitted), protect business continuity, allow parents to retain control through preferred shares, and simplify eventual transfer at death. They also enable use of the Lifetime Capital Gains Exemption by future owners, multiply exemptions across multiple family members using a family trust, and support matrimonial and asset protection planning. Estate freezes are one of the most powerful tools in Canadian estate and corporate tax planning.

Estate Freeze and Family Trusts
Many estate freezes combine with a family trust. The trust holds new common shares, allowing trustees to decide which children or beneficiaries benefit from future growth. This allows flexible income splitting, protection from divorce, and controlled wealth transfer. Trust income allocation, TOSI rules, and attribution rules must be carefully analyzed to ensure full compliance.

Québec-Specific Considerations
Québec corporation reorganizations must follow civil law, and trust structures must comply with TP-646 trust filing rules, beneficiary disclosures, and Québec succession requirements. Québec has stricter oversight of rollovers and freezes, especially when real estate is involved. All documents must be bilingual or Québec-compliant to avoid legal challenges.

Documentation Required
Proper implementation of spousal rollovers and estate freezes requires legal agreements, valuations from accredited appraisers, trust deeds, share exchange resolutions, section 85 election forms, beneficiary designations, estate plans, will clauses, and tax filings including T2 adjustments and T3 trust returns. CRA and ARQ demand thorough documentation during audits.

Key Court Decisions
Courts have upheld spousal rollovers when trust terms meet legal standards and denied them when other beneficiaries had access to capital. Courts also confirm that estate freezes must follow corporate reorganization laws and reflect genuine economic substance. Valuation errors, sham transactions, or improper documentation often lead to reassessments. Courts consistently reinforce strict compliance with tax rules governing spousal rollovers and estate freezes.

Why CRA and Revenu Québec Audit These Transactions
Audits commonly arise for valuation disputes, improper trust terms, incorrect beneficiary designations, missing section 85 elections, incomplete freeze documentation, and attribution-rule violations. CRA and ARQ also review whether spouses meet residency requirements, whether trusts follow rollover conditions, and whether estate freezes shift value appropriately. Real estate and private corporations are high-risk audit categories.

Mackisen Strategy
Mackisen CPA provides full strategic planning for spousal rollovers and estate freezes, including corporate reorganizations, share freezes, family trust integration, Section 85 elections, business valuations, RRSP/RRIF rollover guidance, final return coordination, and CRA/ARQ audit defense. We work alongside lawyers to ensure all documents are drafted correctly and tax elections are filed on time. Our approach protects family wealth and ensures full tax compliance.

Real Client Experience
A business owner with a fast-growing corporation implemented an estate freeze with Mackisen, protecting millions in future gains from taxation. A Québec couple transferred their assets into a spousal trust to ensure tax-deferred rollover. When CRA questioned trust terms, we provided legal and tax support and secured full approval. Another investor froze a rental portfolio; Mackisen optimized valuations and prevented future estate tax burdens. We have also corrected improper freezes implemented by inexperienced advisors and reversed penalties.

Common Questions
Is a spousal rollover automatic? It applies only if certain conditions are met, especially residency.
Can an estate freeze reduce taxes at death? Yes, often significantly.
Can spousal rollovers apply to RRSPs and RRIFs? Yes with correct beneficiary designations.
Do estate freezes affect business control? Preferred shares allow owners to retain full control.
Does Québec require additional estate freeze filings? Yes, including TP-646 and civil code compliance.
Can I combine an estate freeze with a family trust? Yes, commonly done for tax and succession planning.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps families, business owners, and investors design effective spousal rollovers and estate freezes that minimize tax and protect wealth. Whether restructuring a corporation, planning for succession, or filing final returns, our expert team ensures precision, compliance, and strategic long-term tax optimization.