What Happens to Your Corporation When You Die?
Without proper planning, your death could trigger massive taxes on your corporation. Learn about deemed disposition, corporate shares in estates, and planning strategies.
- Death triggers a "deemed disposition" of all capital property
- Corporate shares are valued at fair market value at death
- Tax bill can be hundreds of thousands of dollars
- LCGE and spousal rollover can eliminate or defer tax
- Life insurance is often the best solution for tax funding
The Harsh Reality
When you die, CRA treats you as if you sold all your assets at fair market value. This includes your corporate shares.
No cash changes hands. But the tax bill is very real.
The Problem Illustrated
- You paid $100 for your incorporation shares
- Business is now worth $2,000,000
- At death: Deemed disposition of $1,999,900 gain
- Taxable capital gain: $999,950 (50% inclusion)
- Tax at 50% marginal rate: ~$500,000
- Where does estate find $500,000?
Spousal Rollover
If shares pass to your surviving spouse:
- No deemed disposition at your death
- Spouse takes over your cost base
- Tax deferred until spouse sells or dies
- Automatic unless you elect otherwise
The tax bill isn't eliminated - just delayed. When spouse dies, the full gain is triggered (unless shares pass to next spouse or are otherwise planned for).
Lifetime Capital Gains Exemption at Death
- Can shelter $1.25M+ in capital gains at death
- Must be QSBC shares at time of death
- Must meet 24-month ownership test
- Reduces or eliminates tax on deemed disposition
LCGE at Death Example
- Shares worth: $2,000,000
- Cost base: $100
- Capital gain: $1,999,900
- LCGE available: $1,250,000
- Taxable gain after LCGE: $749,900
- Tax (at 50% rate): ~$375,000
- vs. without LCGE: ~$500,000
- Savings: $125,000+
Life Insurance Solutions
- Corporation owns policy on shareholder's life
- Corporation pays premiums (not deductible, but uses corporate dollars)
- At death: Proceeds go to corporation tax-free
- Increases Capital Dividend Account (CDA)
- Can pay tax-free dividend to estate to fund tax bill
- You own the policy personally
- Premiums paid with after-tax dollars
- At death: Proceeds go to named beneficiary tax-free
- Can fund tax bill directly
Planning Strategies
Lock in today's value to cap your future tax exposure.
Trigger LCGE during lifetime to reset cost base higher.
Ensure liquidity to pay taxes without forcing business sale.
Maintain eligibility for LCGE - watch for passive assets.
Don't Leave Your Family a Tax Nightmare
Tax Punjabi can help you plan for business succession and ensure your family isn't burdened with unexpected taxes.
This article is for educational purposes only. Estate planning is complex - consult professionals for your specific situation.