What happens to taxes when you die
Canada has no inheritance tax, but on death you are generally taxed as if you had sold everything at its market value. Gains on company shares, investments and cottages are taxed on your final return, RRSPs and RRIFs are added to income in full, and Ontario charges Estate Administration Tax on assets that pass through a probated will: nothing on the first $50,000 and $15 per $1,000 above that. On a $1 million estate, that tax alone is about $14,250.
Assets left to a spouse, or to a trust for a spouse, can usually pass without tax until the spouse’s death. Good planning uses that, and prepares for the second death.
Wills and powers of attorney
- A current will naming your executors and how your estate is divided
- Powers of attorney for property and for personal care, so someone you trust can act if you can’t
- Beneficiary designations on RRSPs, RRIFs, TFSAs and life insurance, which pass outside the will
- Wills that match your company’s shareholder agreement
Wills and powers of attorney are legal documents prepared by a lawyer. We work with your lawyer so the wills and the tax plan fit together, or introduce you to an estate lawyer.
Multiple wills for company shares
Since Granovsky Estate v. Ontario (1998), Ontario residents can use a primary will for assets that need probate and a secondary will for assets that don’t, such as private company shares. Shares passing under the secondary will avoid Estate Administration Tax: on $1 million of company shares, that saves about $15,000.
Estate freeze: cap the tax on death
An estate freeze locks in today’s value of your company for tax purposes and passes future growth to your children or a family trust. You exchange your common shares for preferred shares with a fixed value equal to what the company is worth today, and new common shares are issued to your children or a family trust for a nominal amount. The exchange is generally tax-deferred under section 86 of the Income Tax Act.
You can keep control through voting preferred shares and redeem them gradually for retirement income.
A simplified example: your company is worth $2 million today and grows to $5 million by the time of your death. Without a freeze, tax on death is based on the full $5 million. With a freeze today, it’s based on $2 million, and the $3 million of growth belongs to your children. At Ontario’s top rate, the tax on $3 million of capital gains is roughly $800,000 (half of the gain is taxable, at 53.53%). This ignores the lifetime capital gains exemption and your cost base, which we include in a real plan.
- Caps the tax payable on your death at today’s value
- Shifts future growth to the next generation
- Can let several family members use their own lifetime capital gains exemption when the business is sold
- Lets you keep control of the company
- Can be adjusted with a “refreeze” if the company’s value drops
Family trusts and the 21-year rule
The new growth shares are often held by a discretionary family trust, which lets you decide later which family members benefit. Trusts come with obligations: most trusts are treated as selling their assets at market value every 21 years, so the shares need to be distributed or planned for before the anniversary. Trusts also file annual returns with beneficial ownership information, and new bare trust filing rules apply starting with the 2026 tax year.
Other tools we use
- Spousal rollovers that defer tax until the second death
- Life insurance, often owned by the company, to pay the tax on death; the proceeds can be paid out tax-free through the capital dividend account
- Post-mortem planning so the same company value isn’t taxed twice, once on death and again when the company pays out
- Gifts during your lifetime, with care around the attribution rules
How we work
Review
Your assets, company, family and the wills and agreements you have now.
Estimate
The tax and probate your estate would pay today, and after planning.
Coordinate
With your lawyer for the wills and freeze documents, and with your insurance advisor if insurance is part of the plan.
Keep it current
Every few years, and after a marriage, death, birth, sale or move.
Common questions
Is there an inheritance tax in Canada?
No. But on death you are generally taxed as if you sold your assets, RRSPs and RRIFs are fully taxable unless they go to a spouse, and Ontario charges Estate Administration Tax on assets passing through a probated will.
Do I need an estate freeze?
It’s worth looking at if your company is worth a significant amount and still growing, you want your children or a family trust to benefit from future growth, and you’re comfortable fixing your own share of the value today. We model it before you decide.
Do you prepare wills?
No. Wills and powers of attorney are prepared by a lawyer. We handle the tax planning and work alongside your lawyer, or introduce you to one.
Can an estate freeze be changed later?
Yes, to a degree. If the company’s value falls, a refreeze can reset the preferred shares to a lower value. Undoing a freeze entirely is harder, which is why we model it first.