Spousal Rollovers and Estate Freezes1

Introduction
Understanding spousal rollovers and estate freezes is essential for families, high-net-worth individuals, business owners, and investors looking to reduce tax, protect wealth, and structure generational succession. These are two of the most powerful tax-planning tools available in Canada. A spousal rollover allows assets to transfer tax-deferred to a surviving spouse or spousal trust. An estate freeze locks in the current value of a business or investment portfolio so that future growth is transferred to children or a family trust at a much lower tax cost. When executed properly, these strategies significantly reduce capital gains at death, protect family businesses, and simplify estate planning. When executed incorrectly, they trigger reassessments, penalties, denied rollovers, and legal 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, subsection 70(6) (spousal rollover at death), subsection 73(1) (inter vivos rollover), section 85(1) rollover elections, section 86 share reorganizations, the Excise Tax Act, Québec’s Taxation Act, civil law succession rules, trust legislation, and CRA administrative policies. CRA and Revenu Québec review these transactions closely because they allow large amounts of tax to be deferred or eliminated. Proper documentation, valuations, elections, and trust deeds are essential.

What Is a Spousal Rollover?
A spousal rollover allows property to transfer tax-deferred to a spouse or common-law partner. Instead of a deemed disposition at death or at the time of transfer, assets roll over at their adjusted cost base, avoiding immediate capital gains tax. The tax is only triggered later when the surviving spouse sells the asset, dies, or transfers it outside the spousal trust. This rollover applies to principal residences, rental properties, non-registered investments, business assets, RRSPs and RRIFs (if a proper beneficiary is named), and private corporation shares. The rollover preserves liquidity for the surviving spouse and prevents the estate from paying a large tax bill prematurely.

Requirements for a Spousal Rollover
To qualify, the recipient must be a spouse or common-law partner who is a Canadian resident at the time of transfer. If assets are transferred to a spousal trust, the trust must ensure that only the spouse receives income during their lifetime and that no one else can access or use the capital. If these requirements are not met, the rollover is denied and assets are deemed disposed at fair market value, triggering immediate tax. Executors must verify wills, trust deeds, and beneficiary designations to ensure proper rollover eligibility.

RRSP and RRIF Spousal Rollovers
RRSP and RRIF accounts can transfer tax-deferred to the spouse if the spouse is named as the beneficiary. If the estate is named instead, the rollover can still occur through the final tax return if specific conditions are met. If done incorrectly, the full value of the RRSP or RRIF becomes taxable on the deceased’s final return. Proper beneficiary designations and election filings are critical.

Real Estate Rollovers
A principal residence or rental property can roll over at cost to a spouse or spousal trust. This defers capital gains tax until the surviving spouse disposes of the property. Rental properties may have depreciation recapture issues. Québec civil law succession rules also require proper notarial documentation to enforce provincial rollover eligibility.

What Is an Estate Freeze?
An estate freeze is a tax-planning strategy where the current owner of a corporation, rental portfolio, or investment asset freezes their interest at today’s value. Future growth is transferred to children or a family trust. The owner typically exchanges common shares for fixed-value preferred shares through a section 86 reorganization or a section 85 rollover. The trust or children acquire new common shares for nominal cost. All future appreciation goes to the next generation, reducing capital gains tax on the parent’s future death.

Benefits of Estate Freezes
Estate freezes reduce future taxable capital gains, support intergenerational succession, protect business continuity, multiply access to the Lifetime Capital Gains Exemption, and shift income to beneficiaries where allowed. Parents may retain full control using preferred shares while passing growth to children. Freezes are also essential for high-value estates planning ahead of the 21-year deemed disposition rule for trusts.

Estate Freezes and Family Trusts
Most freezes involve a family trust. The trust holds new common shares, allowing trustees to choose which children or beneficiaries benefit from future business growth. This provides protection against family disputes, divorce, creditor claims, and financial mismanagement. Proper allocation planning ensures compliance with TOSI and attribution rules.

Québec-Specific Considerations
Québécois taxpayers must comply with civil code succession rules, notary requirements, TP-646 trust reporting, Québec corporate law, and provincial anti-avoidance rules. Québec imposes strict oversight on rollovers and freezes, especially when real estate or professional corporations are involved. Documents must comply with provincial legal standards.

Documentation Requirements
Executing spousal rollovers and estate freezes requires share exchange agreements, valuations from certified valuators, corporate resolutions, section 85 elections, trust deeds, updated wills, beneficiary forms for RRSPs and RRIFs, and tax filings including T2 adjustments and T3 trust returns. CRA and ARQ require comprehensive documentation during audits.

Key Court Decisions
Courts uphold spousal rollovers when trust terms meet legislative requirements and deny them when other beneficiaries can access capital. Courts confirm that freezes must reflect genuine economic transactions and proper valuations. Cases emphasize that improper documentation, sham transactions, or continued beneficial ownership by the freezer can invalidate the freeze. Courts support CRA reassessments when attribution or anti-avoidance rules apply.

Why CRA and Revenu Québec Audit These Strategies
High audit risk arises from valuation disputes, missing section 85 elections, improperly drafted spousal trusts, invalid rollover conditions, misuse of preferred shares, attribution-rule breaches, and undocumented reorganizations. CRA closely monitors real estate freezes, professional corporations, and high-value estates. Revenu Québec audits trust income allocation, asset transfers, and compliance with civil law rules.

Mackisen Strategy
Mackisen CPA provides full planning, implementation, and audit protection for spousal rollovers and estate freezes. We coordinate corporate reorganizations, section 85 rollovers, preferred share freezes, trust integration, RRSP/RRIF rollover elections, business valuations, and estate-planning tax filings. We work with your lawyer to ensure documents meet legal requirements. Our firm also defends taxpayers during CRA and ARQ audits involving rollovers and freezes.

Real Client Experience
A business owner freezing a rapidly growing corporation saved millions in future tax by locking in today’s value. A Québec couple used a spousal trust rollover; CRA questioned the terms, and Mackisen successfully defended the plan. Another client froze a rental property portfolio; we prepared valuations and optimized share structure. We also corrected improperly executed freezes from other advisors and rewrote documentation to avoid reassessment exposure.

Common Questions
Is a spousal rollover automatic? Only if legal requirements are met.
Does a freeze transfer control of the business? No—parents often retain control with preferred shares.
Can RRSPs be rolled over tax-free? Yes, if spouse is properly named as beneficiary.
Does Québec require additional filings? Yes, including TP-646 and notarial compliance.
Can a freeze reduce capital gains at death? Yes—often dramatically.
Can family trusts be used with a freeze? Yes, commonly and strategically.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps business owners, families, and investors implement spousal rollovers and estate freezes with accuracy and confidence. Whether restructuring a corporation, planning generational transfers, or preparing a tax-deferred rollover, our expert team ensures proper documentation, tax optimization, and full protection from CRA and ARQ challenges.