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Estate Freezes in Uncertain Times: Why Valuation Matters
Article Written October 1, 2026 | Business Valuation
The benefits of an estate freeze often depend on value, which is determined as at a specific date and changes with market conditions. As this article explores, timing can have a significant impact on value.
What Is an Estate Freeze?
An estate freeze is a tax planning strategy pursuant to which you “freeze” the current value of capital assets with accrued gains and growth potential – such as shares of a private corporation1, real estate properties and/or non-registered investments2 – and shift the future growth to another individual, typically a family member (e.g., the next generation), without giving up control. Under Canadian tax rules, assets are deemed to be disposed of at fair market value3 (“FMV”) on death, typically resulting in taxes on capital gains and/or recapture. With an estate freeze, you also “freeze” the value subject to the deemed disposition, and pass the future growth and related tax liability to that individual.
Economic and Policy Uncertainty
GDP growth in Canada has been weak and volatile since the United States introduced tariffs in early 2025. While the Canadian economy has been surprisingly resilient, trade tensions between Canada and the U.S. have risen dramatically recently with the U.S. imposing 50% tariffs on certain Canadian imports, and Canada taking similar retaliatory measures on U.S. imports.4 Businesses that export to the U.S. or rely on U.S. inputs, such as manufacturers, dairy and agricultural producers, and suppliers of building materials, are the most directly exposed. The U.S. has since banned certain Canadian imports outright, including alcoholic beverages, whey, molasses and motorcycles.5
In times of such prolonged uncertainty, revenues and, more importantly, earnings of some businesses may have been, or are expected to be, adversely impacted. The value of a private business is generally driven by its expected future maintainable earnings and the risk of achieving them as at the valuation date. When earnings fall and uncertainty rises, both work against value: lower expected cash flows, capitalized or discounted at a higher rate of return. It may be a good time for owners of certain businesses to implement an estate freeze during the economic downturn to lock in the lower value, and potentially realize income tax savings in the event of death.
That said, a temporary dip in earnings does not necessarily mean a lower value. A hypothetical purchaser looks at the earnings a business can sustain over the long term, not a single difficult year. Distinguishing a temporary disruption from a lasting impairment is a key judgment in any freeze valuation, and one the Canada Revenue Agency (“CRA”) may scrutinize.
Toronto Residential Real Estate Market
The values of businesses and their assets fluctuate over time, as discussed above. Real estate provides a useful illustration: the residential market in the Greater Toronto Area (GTA) has the longest and most consistent public price record.
As shown in the above graph, the average residential property price in the GTA has generally decreased from the peak of $1,339,084 in February 2022 to $993,410 in August 2026 (approximately 26% in the 4.5-year period), based on the sale of all finished residential properties including condominium units, townhouses, semi-detached homes and detached homes.6 As such, it may also be a good time for owners of real estate holding companies, businesses with real estate investments and personally-held real estate portfolios to implement an estate freeze. Real estate prices have historically outpaced inflation over the long term,7 and housing supply in Toronto has persistently lagged long-run population growth. While reduced immigration targets have temporarily slowed population growth, the structural supply shortfall is projected to persist.8 If and when the housing market rebounds, an estate freeze transfers the future growth to the next generation.
Not All Properties Are the Same
The average prices above reflect all housing types in the GTA, and are presented for illustration purposes only. Each property is unique physically, legally and economically. Different neighbourhoods have different market dynamics. A semi-detached home may be worth more than a similar home next door because of significant renovations done to the kitchen last year.
Many business owners also hold commercial properties. These properties (such as office, retail, industrial, multi-family and agricultural) are driven by different factors, and their value may depend more on the income they generate than on what a similar property recently sold for. Commercial property values have also moved differently from residential property values, depending on the property type. Just as the reported profits of a business may not tell the whole story in a business valuation, market averages may not tell the whole story for a particular property. A real estate appraisal may be required to determine the market value of the subject property.
Example – Tax Savings
While not the only consideration, the potential income tax savings on death from an estate freeze can be significant. Here is an example involving real estate properties:
David and Mary jointly own rental properties purchased 20 years ago for $1 million, which is assumed to be the adjusted cost base (“ACB”) for tax purposes. They also own their home, which qualifies for the principal residence exemption.
They have two adult children and would like to eventually transfer their wealth to the children.
The current FMV of the rental properties is $3 million, down from $4 million at the market peak in February 2022 (a 25% decline).
Given the long-term trend of real estate prices, they assume the rental properties will be worth $10 million 20 years from now.
They both pay income taxes at the top marginal income tax rate of 53.53% in Ontario.9
If both David and Mary pass away 20 years from now, all their assets would be deemed to be disposed of at FMV, including the rental properties, assumed to be worth $10 million at that time. Approximately $2,409,000 of income tax would be payable on the capital gains from the rental properties.10
If they implement an estate freeze now, when the current FMV of the rental properties is $3 million, they would hold the freeze shares (the fixed-value preferred shares) of a real estate holding company with an FMV of $3 million. This means that their potential tax liability is also frozen, and approximately $535,000 of income tax would be payable on the capital gains from the rental properties when they pass away.11 Therefore, the income tax payable would be reduced by approximately $1,874,000.12
However, as with all investments, it is very difficult to time the bottom of the real estate market. Suppose that, due to a lack of investor confidence, persistent trade tensions between Canada and the U.S., and higher-than-expected interest rates, the rental properties further decrease to an FMV of $2 million three years from now. David and Mary could implement a “refreeze” of the shares of the real estate holding company by exchanging their fixed-value preferred shares for new preferred shares based on the lower FMV of $2 million at that time. Approximately $268,000 of income tax would be payable on the capital gains from the rental properties when they pass away.13 Therefore, the income tax payable would be reduced by a further $267,00014 (or $2,141,000 in total compared to not implementing an estate freeze).15
Kalex Partners Inc. welcomes the opportunity to answer your questions and provide support on business valuation matters, including those related to topics covered in this article.
Other Considerations
If the shares of a business are qualified small business corporation (“QSBC”) shares,16 an individual shareholder can potentially use the lifetime capital gains exemption (“LCGE”) to shelter up to $1,275,000 of capital gains on a sale or deemed disposition on death in 2026.17 With proper tax planning, an estate freeze can multiply the LCGE across family members (e.g., for a family of four, up to $5.1 million in total capital gains),18 thereby potentially saving significant income tax for a family unit. However, shares of companies that do not carry on an active business, such as real estate or investment holding companies, generally do not qualify as QSBC shares.
Beyond tax, an estate freeze can also support succession planning objectives (e.g., bringing a child or key employee who is active in the business into the ownership structure) and family law planning objectives (e.g., gifting shares to a child after the date of marriage, rather than before, so the shares may be excluded from equalization in the event of a divorce).19 It is important to consult your professional advisors, as every situation is different. An estate freeze must be properly planned and implemented to avoid adverse tax consequences.
Disadvantages
An estate freeze is not without costs. Accounting, tax, legal, valuation and real estate appraisal fees may be incurred upfront, although these may be modest relative to the potential tax savings illustrated above. If an estate freeze involves establishing a holding company and/or a family trust, these would add ongoing compliance costs, such as financial statements, income tax filings and governance. For personally-held real estate, land transfer tax is generally payable when the properties are transferred into a corporation, and this cost can be significant.
A freeze also adds complexity. The corporation will typically have multiple classes of common and preferred shares, with different rights and characteristics that all parties need to fully understand.
How Kalex Can Help
An estate freeze typically includes a price adjustment clause, but the CRA will generally respect the clause only where the parties made a bona fide attempt to determine FMV using a fair and reasonable method, which is why an independent valuation as at the freeze date is important.
Our team of professionals prepares independent and defensible valuation reports in accordance with the Practice Standards of the Canadian Institute of Chartered Business Valuators (“CBV Institute”).
While Kalex is not a tax planning firm, we are frequently engaged to value the equity of the entity to be “frozen” or “refrozen.” Our comments above are from a valuator’s perspective, and anyone considering an estate freeze, succession planning or other transactions utilizing provisions of the Income Tax Act should consult with a tax professional.
Footnotes:
1 An estate freeze of shares of a private corporation involves the business owner exchanging their existing common shares for fixed-value preferred shares (redeemable/retractable at an amount equal to the FMV of the shareholder’s common shares on the freeze date; and with special voting rights to retain control of the corporation). New common shares are issued (usually for a nominal amount) to the next generation directly, or more commonly to a discretionary family trust for their benefit.
2 For personally-held real estate properties and non-registered investments (e.g., publicly traded shares outside registered accounts such as TFSAs and RRSPs), these assets have to be transferred into a corporation first using a tax rollover to defer taxes on capital gains and/or recapture. Then, the shares of that corporation can be frozen as described above. However, provincial and municipal land transfer tax is generally payable upon transfer of personally-held real estate properties into a corporation.
3 Fair market value is generally defined as the highest price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of relevant facts.
4 Source: “Monetary Policy Report” as published by the Bank of Canada in July 2026, “Our Economic Outlook for Canada” as published by Vanguard on September 11, 2026 and “Canada’s Economy Gains Ground Despite Trade and Energy Headwinds” as published by RBC Economics on September 14, 2026.
5 Source: “Canada-U.S. Trade War” as published by the Canadian Federation of Independent Business (CFIB) (last modified on September 30, 2026).
6 Source: Average Residential Property Price in the Greater Toronto Area from September 2006 to August 2026 as provided by the Canadian Real Estate Association (CREA) Aggregate Statistics on September 15, 2026.
7 Source: “Canada – Real Home Prices (1970-2026)” as provided by Macrotrends LLC as of March 2026. The chart shows real (inflation-adjusted) home prices in Canada from 1970 to 2026, which do not include net rental income.
8 Source: “Fall 2026 Housing Supply Report” as published by the Canada Mortgage and Housing Corporation (CMHC) on September 10, 2026. CMHC estimates that Toronto requires an increase in annual housing starts of at least 50% over the next decade to return to 2019 levels of affordability.
9 Source: Combined federal and Ontario personal income tax rates in 2026 as provided by TaxTips.ca.
10 Calculated as ($10 million - $1 million) x 50% inclusion rate x 53.53%. For illustration purposes, we have assumed that capital cost allowance (“CCA”) is not claimed on the rental properties and, therefore, there would not be any taxes on recapture. Recapture occurs when depreciable property is disposed of for more than its undepreciated capital cost (“UCC”), with the CCA previously claimed added back to income and taxed as ordinary income (100% inclusion rate) rather than as a capital gain (50% inclusion rate). Where CCA has been claimed, the income tax payable on death without a freeze would be higher, as it would include recapture, and the potential savings from a freeze correspondingly greater.
11 Calculated as ($3 million - $1 million) x 50% inclusion rate x 53.53%.
12 The tax on future growth is saved on David and Mary's deaths, but it is not eliminated. Rather, it is deferred to the next generation, and post-mortem tax planning is required to avoid potential double taxation on the shares of the holding company.
13 Calculated as ($2 million - $1 million) x 50% inclusion rate x 53.53%.
14 Calculated as $535,000 - $268,000.
15 For illustration purposes, we have not considered contingent disposition costs (“CDCs”) relating to the rental properties held in the holding company. CDCs are typically considered in the valuation of the FMV of the company, as they are potential future financial consequences (e.g., taxes, selling fees, legal fees, etc.) of realizing the value of an asset. We have also not considered provincial and municipal land transfer tax that is generally payable upon transfer of personally-held real estate properties into a corporation.
16 QSBC shares are generally shares of a Canadian-controlled private corporation that uses all or substantially all (90% or more) of its assets in an active business in Canada, subject to holding period and asset tests over the preceding 24 months.
17 Source: Lifetime capital gains exemption limit for 2026 as provided by TaxTips.ca.
18 Calculated as 4 individuals x $1,275,000 LCGE limit in 2026.
19 Family law issues are complex and the reader is cautioned to consult with knowledgeable professionals when dealing with such issues. Kalex is frequently involved in the financial aspects of family law matters including planning.
About the Author
Victor Li, CPA, CA, CBV is a Director at Kalex Partners Inc. with over 15 years of professional experience. He has prepared valuations for income tax planning, estate planning, family law, shareholder buyouts and transaction advisory purposes. His experience also includes quantifying economic damages in tort and breach of contract claims.
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