SME Accounting
Estate freeze in Quebec: A guide for entrepreneurs (2026)
3/8/2026
Key Takeaways
You’ve built a profitable business in Quebec, you’re 45, 50, or 55 years old, and you’re starting to look toward the future: family succession, a partial sale, or a phased retirement. The estate freeze is one of the most powerful tax strategies in your arsenal for Preparing for This Transition without leaving a disproportionate share of your hard-earned wealth to Revenu Québec and the CRA. The idea is simple: lock in the value of your shares at today’s price, and let all future growth accrue to your children or a family trust. However, it’s essential to fully understand the mechanics, the optimal timing, and the common pitfalls. This guide explains in business terms what tax experts refer to as Sections 86 and 85 of the Income Tax Act.
A estate freeze is a Corporate Reorganization Strategy which transfers the business’s future growth to heirs or a family trust, while freezing the current value of the shares in the founder’s name. In practice, you exchange your common shares (which appreciate in value) for fixed-value preferred shares. New common shares are then issued, typically held by a family trust for the benefit of your children or spouse. Any capital appreciation after the freeze goes to them.
The goal is threefold: to limit your Tax Bill Upon Death, multiply the Lifetime Capital Gains Exemption (LCGE) among several family members, and facilitate the transfer or future sale. This mechanism is primarily used by CCPC (Canadian-Controlled Private Corporations) Growing.
The process is based on two key sections of the Income Tax Act (ITA). Both aim for the same result (freezing the value), but take different approaches.
L'Section 86 of the Income Tax Act allows existing common shares to be exchanged for Fixed-Value Preferred Shares without triggering an immediate capital gain. The redemption value of these new preferred shares is equal to the business’s fair market value on the freeze date. After the exchange, a new class of common stock (future growth) is issued, which will be held by the heirs or by a trust. This is the simplest approach when the business already exists and you want to freeze the ownership structure within the same corporation.
L'Section 85 of the Income Tax Act, often referred to as tax rollover, allows for the transfer of property (stock or assets) to a Canadian corporation without immediate taxation. In the context of a freeze, it is typically used to transfer the stock of the operating business to a Asset Management Company (Gesco) newly created, in exchange for fixed preferred shares. This allows the freeze to be combined with other objectives: asset protection, passive investment accumulation, and planning for Growth of the LCGE or preparing for a future sale.
In most modern estate freezes in Quebec, the new common shares (those that will capture all future growth) are not transferred directly to the children. They are held by a family trust whose beneficiaries are the children, spouse, or other designated members. The trust offers three key advantages: flexibility (the trustee chooses to whom to distribute dividends or capital), protection (against a beneficiary’s personal creditors), and the potential to multiply the LCGE among multiple beneficiaries in the event of a future sale.
Please note: Since 2018, the TOSI Rules (split income tax) severely limit the ability to split dividends with adult beneficiaries who are not actively involved in the business. A trust no longer provides the same freedom to split dividends as it did in the past.
| Criteria | Article 86 (Internal Exchange) | Section 85 (rollover) |
|---|---|---|
| Mechanism | Exchange of Shares Within the Same Corporation | Transfer of an Asset to Another Canadian Corporation |
| Price Options | No Choice: Exchange at Fair Market Value | Choice Between Tax Cost and Fair Market Value (Very Flexible) |
| Tax Form | No rollover forms | Forms T2057 (federal) and TP-518 (Quebec) are required |
| When to Use It | Freeze within the Existing Company | Establishing a Gesco, Asset Segregation, Future Sale |
| Complexity | Simpler, Fewer Corporations | More flexible, but more structures to maintain |
| Combination | Often Combined with the Creation of a Trust | Often combined with Section 86 for a freeze + Gesco |
In Quebec, many freeze arrangements combine both provisions: a Section 85 rollover to a new management company, followed or preceded by a Section 86 exchange. The choice depends on the existing structure, the presence of a shareholders’ agreement, and the ultimate objective (family succession, sale, or separation of assets and operations).
Timing is probably the most difficult and critical decision. Freezing assets too early can be a costly complication for no reason; freezing them too late means losing the leverage on growth. Five converging indicators signal that it’s time to seriously consider the issue with your tax specialist.
Good to Know
The freeze is not necessarily total. A partial freeze allows you to lock in a portion of the value while retaining access to future growth. Useful when the founder wants to transfer ownership gradually, maintain some leverage, or plan for a possible unfreezing if conditions change. This flexibility, which is still underutilized, requires a tailored approach.
Marie, 52, has been running a professional services firm valued at $5 million for the past 18 years. Her two children, ages 24 and 28, work at the business. Marie anticipates sustained growth (entry into a new market) and plans to pass the business on to them in 8 to 10 years.
Strategy: Exchange under Section 86 + creation of a family trust with Marie, her spouse, and their two children as beneficiaries. Marie receives preferred shares valued at $5 million. The trust subscribes to the new common shares for a nominal amount. All subsequent growth (for example, an additional $4 million over 8 years) accumulates in the trust, outside of Marie’s estate. Upon a future sale, the LCGE can be distributed among the active beneficiaries of the trust.
Pierre, 58, owns a manufacturing business valued at $8 million. A strategic buyer has expressed interest, and the transaction is expected to take place in 24 to 36 months. Pierre wants to maximize his after-tax proceeds.
Strategy: Section 85 rollover to a new Gesco + creation of a family trust at least 24 months before the sale, to comply with the “purification” rules of the Active CCPC and the Asset test every 24 months. At the time of sale, the LCGE is distributed among Pierre, his spouse, and possibly the adult active beneficiaries of the trust, subject to TOSI rules. Typical result: $200,000 to $500,000 in tax savings, depending on the family structure.
Jean-François, 41, owns a business valued at $800,000. His advisor suggests an immediate freeze. Problem: Growth over the next 5 years is uncertain; the structures that need to be maintained (trust, annual T3 form, appraisals) cost between $4,000 and $8,000 per year; and a potential unfreezing is complicated. It’s probably too early to freeze it here.
In contrast, Lise, 64, owns a $12 million business that she plans to sell next year. Freezing it now is Too late : The value has already been created; the freeze will not capture any future growth, and the 24-month test for the LCGE will not be met. In this case, other strategies (purification, simple LCGE, estate planning) are more appropriate.
Beyond timing, certain mistakes occur regularly and are costly to correct after the fact.
Estate freezing is never a solo endeavour. The typical structure involves four complementary roles, sometimes handled by a single firm and sometimes outsourced.
The total cost of a comprehensive estate planning plan for an SME with assets of $2 million to $10 million generally ranges from $15,000 and $50,000, plus a recurring annual cost of $3,000 to $8,000 for filings and maintenance. Over 10 years, the potential tax savings amount to hundreds of thousands of dollars when the plan is properly executed.
If you’re exploring this project and looking for the right team, rather than going it alone, you can Find an accountant specializing in estate planning who will coordinate the entire process. The right fit isn’t just any CPA: you need a firm that has already managed estate freezes in Quebec.
The estate freeze is part of a broader range of tax strategies for growing entrepreneurs. To learn more about the concepts surrounding it, check out several related articles on our Quebec Accounting and Tax Glossary will explore these topics in greater depth:
A well-structured estate freeze requires the support of an experienced tax specialist. As a reference, the Bankeo Fee Barometer estimates accounting fees at around $3,000 per year (median; ranging from $500 to $6,000 depending on complexity), a modest cost compared to the deferred tax and the capital gains exemption that a freeze allows you to grow your wealth as a family. Every accountant in the Bankeo network is vetted according to the Bankeo Trust Index.
Most succession planning in Quebec takes place between the ages of 45 and 60. Before age 45, the value created is often too low and future growth too uncertain to justify the costs. After age 60, the leverage effect on future growth diminishes. The right time depends mainly on the trajectory of your business’s growth and your timeline for succession or sale.
The full setup (tax advisor, notary, appraiser, accountant) generally costs between $15,000 and $50,000 for an SME with revenue of $2 million to $10 million, depending on complexity. There is also a recurring annual cost of $3,000 to $8,000 for T3 returns, updating the structure, and complying with TOSI rules.
Yes. If the succession plan is clear and limited to a single person, or if the primary objective is to separate assets from operations, a freeze without a trust (for example, through a pure Section 86 arrangement or a simple Gesco) may suffice. A trust becomes useful when you want flexibility in distributions, the ability to leverage the LCGE, or protection against the beneficiaries’ personal creditors.
The TOSI (Tax on Split Income) rules, in effect since 2018, tax dividends received by certain adult beneficiaries who are not actively involved in the business (averaging fewer than 20 hours per week) at the highest marginal tax rate. This significantly limits income splitting through a family trust. However, the freeze remains valuable for transferring growth and increasing the LCGE, which are not affected by TOSI.
A partial or total unfreeze is technically possible, but complex and costly. It usually involves a new reorganization, the redemption of preferred shares at their fixed value, and the issuance of new common shares. It is best to plan carefully from the outset and build flexibility (partial freeze, buyback clauses) into the initial structure.
No. The founder generally retains control through the voting rights attached to preferred shares or through the role of trustee of the family trust. The freeze transfers future economic growth, not necessarily decision-making power. The timing of the actual transfer of control is planned separately, based on the pace of the succession.
Yes. Depending on the structure chosen, Forms T2057 (federal) and TP-518 (Quebec) must be filed for a Section 85 rollover. The family trust must also file an annual T3 return and comply with the new expanded disclosure rules in effect since 2024. The Tax Compliance is a recurring expense that must be budgeted for from the start.
A well-executed estate freeze involves the expertise of an experienced tax specialist, an accountant familiar with your business’s structure, and meticulous coordination with a notary. Bankeo connects you with firms specializing in estate planning in Quebec, selected based on your industry and the size of your business.
Find my accountantAn estate freeze is not some kind of tax magic; it’s a structural tool that requires maturity, planning, and coordination. When implemented correctly, between the ages of 45 and 60, for a growing business with an identified successor or a likely future sale, it can lock in a value of $5 million today and allow several million in growth to accumulate in the hands of the next generation. If implemented poorly, it becomes an administrative cost with no return. The difference between the two scenarios rarely lies in the tax mechanics, but in an honest assessment of the current situation, the Market, and the family. Before implementing any freeze, take the time to establish your shareholder agreement, your Comprehensive Tax Planning and your vision for succession. The rest will follow.
General information provided for informational purposes only, based on known 2026 tax rules. It is not a substitute for the advice of a Chartered Professional Accountant (CPA): always consult a professional regarding your specific situation.
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