skip to content

Revisiting estate plans in light of 2024 income tax changes

Article

As your wealth accumulates, you may look to the future and how to best leave your estate to your loved ones. Developing an estate plan that anticipates the income tax consequences of the succession of your business to family members, the sale of your business, or your death will help achieve your wishes while minimizing the income taxes that need to be paid.

It is good practice to revisit these plans every few years. However, with the changes to income taxes that have been proposed or implemented in 2024, now is a very good time to revisit your existing estate plan or to create one. The items in this article are most relevant for owner-managers and the corporations they own.

Revisiting a freeze of private company shares

A freeze of private company shares is most often done as part of a succession plan to family members. This involves fixing the value of the shares of the company owned by key shareholders and allowing new growth in the company to accrue to new shareholders, usually the next generation in the family.

When the value of the shares is fixed—also known as frozen— the income taxes associated with disposing of those shares can be estimated using current tax rates. Such shares are typically disposed of in a sale or a redemption. The taxes associated with a disposition of the frozen shares can only be determined with certainty at the time of such disposition as the tax will be dependent on tax rates at the time and other taxable income. However, estimates can be made now using current tax rates and projected taxable income levels. Provision can then be made within the estate for payment of these taxes by way of insurance or by using accumulated assets.

Where the disposition of shares is anticipated to be by way of sale or deemed disposition on death, the capital gains taxes that would have been estimated prior to June 25, 2024 would have assumed the capital gains to have a 50% inclusion rate in taxable income. For example, a capital gain of $100,000 would have created $50,000 of taxable income.

If the proposed changes to the capital gains inclusion rates from the 2024 Federal Budget are passed into law, the taxable income associated with the capital gain will increase to create $66,700 of taxable income on a gain of $100,000. (This assumes that the $250,000 annual allowance for taxing gains at the 50% inclusion rate will be used on other dispositions). This proposed change will cause a significant increase in the taxes payable on the gain and therefore an increase in the related insurance coverage or accumulation of assets required to pay taxes upon disposition of shares or upon death.

It may also be beneficial to look at ways to maximize the proposed $250,000 annual allowance to individuals to ensure that this allowance is used to the best advantage each year.
For insight into the proposed capital gains rate changes, see:

Government confirms changes to capital gains inclusion rate

The Federal Government confirms changes to the capital gains inclusion rate.

Read more

2024 top personal marginal tax rates

Listed by province for your convenience.

Read more

When an owner of a private company dies, there have traditionally been two ways to minimize taxes on death—a wind-up of the company which results in a single layer of tax that is a taxable dividend, or a post- mortem transaction to retain the capital gain on death and extract funds via a pipeline transaction. There is now a proposal to extend the ability to wind-up a company after death within three years of death rather than the current one-year timeframe. This combined with the proposed increase in capital gains inclusion rate means that post-mortem planning should be revisited. For example, a year ago, a post-death treatment of a corporation owned by the deceased may have favoured a pipeline over a wind-up, while executors faced with the same facts today may choose a wind-up within three years, provided the proposed tax changes to capital gains are enacted.

It is common with private companies to have more than one corporation within a corporate group. Where there is such a structure, often funds are transferred from a subsidiary to a parent corporation by way of dividends. These dividends are usually tax-free. However, in late 2023, the guidelines used by the Canada Revenue Agency to determine when such inter-corporate dividends will be tax free have recently changed. The changes to these guidelines make 2024 a good time to assess retained earnings in subsidiary corporations to estimate the amounts that can be paid as tax-free dividends in the future.

As the 2024 changes illustrate, taxes can change. Therefore it is beneficial to provide executors of your will with the flexibility to fulfill your wishes in a way that is tax-efficient at the time of death, rather than making strict provisions in your will that locks in a particular tax treatment. This is something that you can discuss with your BDO advisor and your lawyer.

BDO can help

The enacted and proposed income tax changes in 2024 make this year an opportune time to revisit your estate plan to help ensure that the noted tax changes can be mitigated as much as possible.


The information in this publication is current as of September 11, 2024.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our privacy statement for more information on the cookies we use and how to delete or block them.

Accept and close