Case Study — Ms. F (Mississauga Boutique Retail Owner): Estate Freeze + Family Trust Setup for Adult Children Projects $340K LCGE-Multiplied Tax Deferral

Engagement summary: Mississauga founder of a specialty retail chain (3 stores, growth trajectory) executes a s. 86 internal share exchange estate freeze coupled with a discretionary family trust holding new common shares. Structure positions the corporation for a $1,275,000 x 3 LCGE-multiplied tax deferral on eventual sale, subject to QSBC 24-month tests.

Client archetype

Ms. F is a 56-year-old founder of a 3-location Mississauga specialty retail chain (personal-care products, e-commerce plus brick-and-mortar). Annual revenue $4.8M, EBITDA $780K, corporate FMV about $3M based on 4x EBITDA multiple. Two adult children (ages 26 and 24) both financially independent and not currently involved in the business. Existing structure: 100% common shares owned by Ms. F, cost base $100, corporate name held in a single OBCA corporation.

The challenge

Ms. F wanted to (a) cap her death-tax liability at today’s $3M FMV rather than future growth, (b) multiply the LCGE across her 2 adult children on an eventual sale (each child could claim $1,275,000 LCGE in 2026 terms, subject to QSBC tests), (c) retain full operating control and dividend priority during her lifetime, (d) avoid TOSI complications since the children are not active in the business. A naive plan (issuing common shares directly to the children) would leave the children exposed to TOSI on any future dividends and would fail to preserve Ms. F’s operating control.

Insight Accounting CPA approach

Insight designed a s. 86 internal reorganization coupled with a discretionary family trust:

1. Corporate reorg. Ms. F exchanged her 100 common shares under s. 86 for 100 new redeemable/retractable preferred shares fixed at $3,000,000 FMV. The preferred shares carry voting control, dividend priority, and are redeemable at Ms. F’s election. Concurrent articles of amendment authorized new Class B non-voting common shares.
2. Family trust. Insight worked with tax counsel to draft a discretionary family trust (Ms. F as sole trustee during her lifetime; back-up trustee named; standard 21-year rule terms). Beneficiaries: Ms. F, her spouse, both adult children, and future descendants. Trust subscribed for 100 Class B non-voting common shares at $100.
3. Purification. Insight identified $340K of non-active assets in the corporation (portfolio investments accumulated over prior years) that would fail the 90% QSBC asset-use test on eventual sale. Dividended the portfolio up to a newly-inserted intermediate Holdco owned by Ms. F personally, cleansing the operating corporation’s asset base for QSBC eligibility.
4. Compliance calendar. Filed the s. 86 exchange documentation (no CRA election form needed for s. 86); documented the freeze valuation with an independent third-party appraisal. Set 21-year trust anniversary calendar reminder for planning distribution 3 years ahead.

Measurable outcome

Freeze effective date established. Ms. F’s death-tax exposure capped at $3M FMV; all future corporate growth accrues to the family trust’s common shares. If the corporation eventually sells for $6M (projected 10-year exit at 3.5% annual growth), the incremental $3M gain flows to trust common shares; trustee allocates the $3M taxable capital gain across Ms. F and her 2 adult children under s. 104(21.2). Each individual claims their own $1,275,000 LCGE (2026 indexed, presumably higher by exit date). Combined LCGE claimable: $3,825,000 at today’s indexation – fully sheltering the projected exit growth. Present-value tax deferral: approximately $340K on the QSBC purification transactions plus the freeze structure. QSBC eligibility clock now running from purification date; sale eligibility unlocks 24 months later.

Key facts

• Freeze value: $3M FMV.
• LCGE 2026: $1,275,000 per beneficiary.
• Beneficiaries in trust: Ms. F, spouse, 2 adult children, descendants.
• QSBC 24-month clock: starts from purification transaction date.

— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA

Confidentiality: All identifying details anonymized; specifics protected under CPA Ontario Rule of Professional Conduct 208 (Confidentiality). Archetype descriptions are composites illustrative of engagement patterns.

Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.