PARTNERS
Tax Exposure · Co-authored article
Paul and Teresa are 62 and 60. Paul’s Markham distribution company is worth $6 million. Their holding company has $1.5 million saved for retirement. They have a will, an accountant and a $500,000 life insurance policy on Paul, bought years ago.
One evening, Teresa asks: “If something happened to you, would we have to sell the business?”
“We have enough assets,” Paul says.
But would the family have enough cash?
Paul and Teresa are a fictional illustration. Values are simplified and are not a forecast.
The short answer
Leaving your company shares to your spouse delays the tax. It does not remove it. At the second death, the bill can be larger than the cash the estate can reach. Dual wills, both lifetime exemptions and insurance timed to the second death can close the gap, but only if they are in place while you are still here to decide.
Paul answered with a number. Teresa asked a different question.
“Would we have to sell the business?” isn’t really about the business. It’s about her life. Would she keep the house? Would the bills still get paid on time? Would she suddenly be making decisions for a company she has never run?
Before anyone works out a tax bill, three questions need answers.
01
What does Teresa need to keep the life they have?
Not a rough guess: the real monthly figure, and it has to last 25 or 30 years. Would she stay involved in the business, or step away?
02
How much of their wealth is already spoken for?
The $1.5 million in the holding company isn’t spare cash. It’s their retirement. If it pays the tax, it can’t also pay for her life.
03
What should each child receive?
Say their son runs the business and their daughter doesn’t. Equal and fair aren’t always the same thing, and the will rarely says which one Paul meant.
Most owners can quote their revenue to the dollar. Very few can say how their estate tax will be paid. That isn’t carelessness. Growth has a deadline every quarter. Funding the estate has a deadline nobody wants on the calendar.
So it waits. And the family inherits the question instead of the answer.
Passing the business to your spouse postpones the tax. It does not erase it.
At death, Canadian tax rules treat private company shares as if they were sold at fair market value. Because Paul’s shares pass to Teresa, the tax is deferred. The bill arrives at her death and lands on their children. The business does not have to be sold to create this tax. It only has to be owned.
| At Teresa’s death | Amount |
|---|---|
| Tax on Paul’s $6 million of share growth (Teresa’s exemption used) | $1,264,000 |
| Estate administration tax (about 1.5% of a $7.5 million estate) | $112,000 |
| Total owed | $1,376,000 |
| Holding company’s $1.5 million, after dividend tax | $784,000 |
| Paul’s old life insurance policy (paid out at his death) | $0 |
| Cash available | $784,000 |
| Unfunded gap | $592,000 |
How the numbers work: ($6,000,000 − $1,275,000 exemption) × 26.76% capital gains rate = $1,264,410. The holding company’s money reaches the estate as a taxable dividend: $1,500,000 × (1 − 47.74%) = $783,900.
$592,000
Unfunded gap at Teresa’s death: $1,376,000 owed against $784,000 the estate can reach. Paul’s policy paid at the wrong death.
And the $1.5 million is also their retirement fund: every dollar they spend is a dollar not there for the tax.
Numbers do not sell businesses. Deadlines do.
The bill is due within months. Their son, as executor, is $592,000 short, with interest running. He can borrow against the business while staff and suppliers watch, sell the building at whatever the market pays, or sell what his parents spent 30 years building. Every move also changes what his sister inherits.
Planning shrinks the gap. Claiming Paul’s own exemption at his death cuts it to about $251,000 on its own.
Dual wills. In Ontario, private company shares can pass under a secondary will that does not go through probate. That removes about $112,000 of estate administration tax on those shares. Other estate assets may still attract it, and the income tax on the shares does not change.
Paul’s own exemption. Paul’s lifetime exemption does not pass to Teresa. If his executor claims it at his death, the tax at her death falls to about $923,000. The shares must qualify, and the decision is made at the first death, not the second.
| Planning in place | Unfunded gap |
|---|---|
| No planning | $592,000 |
| With dual wills | $480,000 |
| With dual wills and both exemptions | $139,000 |
How the numbers work: ($6,000,000 − $1,275,000 − $1,275,000 in exemptions) × 26.76% = $923,220.
Insurance creates the money at the moment the bill arrives.
Even with good planning, $139,000 still has to come from somewhere. And that figure assumes Paul and Teresa never touch the $1.5 million. Every dollar they draw for retirement widens the gap.
A policy that pays at the second death lands when the tax does. When a corporation owns it, the proceeds can often reach the family tax-free through the capital dividend account, generally on the proceeds less the policy’s adjusted cost basis.
Teresa asked her question over dinner. One day her son may ask it in a lawyer’s office, with a deadline attached.
The difference is time. Today, Paul can still answer. He can say what Teresa needs, what each child should receive and how the bill gets paid. Those answers can be written down, tested and funded.
Later, someone else must guess.
A legacy is a decision, made while the person who built it is still at the table.
Usually, yes. At death, private company shares are treated as if they were sold at fair market value. If the shares pass to a spouse, the tax is generally deferred until the spouse’s death, when the bill lands on the estate.
Most of the value sits in company shares and a holding company. The tax is due within months, and money taken out of the holding company is taxed again as a dividend. Assets are not the same as cash on the due date.
Often. Private company shares can pass under a secondary will that does not go through probate, which avoids estate administration tax of about 1.5% on those shares. It does not reduce the income tax at death.
A policy that pays at the second death creates cash when the tax is due. When a corporation owns it, the proceeds less the policy’s adjusted cost basis can generally be paid to the family tax-free through the capital dividend account.
Helen Ching, RRC, MBA, P.Eng. — Founder and Wealth Advisor of Monai Wealth. Helen helps incorporated business owners turn business success into personal freedom. Book a conversation with Helen.
helen.ching@monaiwealth.com | 289-270-9099
Sami Majdalani, M.A. (Econ.), LLQP — Founder of Eagle Wealth Partners. Sami helps incorporated business owners pass on their business, not a tax bill. Request a free Estate Tax Exposure Assessment.
Start with two conversations: Helen, on what your family needs, and Sami, on what your estate could owe and how to fund it. Sami’s Estate Tax Exposure Assessment is free.
Important information
This article is for general information only and does not constitute personalized financial, investment, legal or tax advice. Before making changes to your estate plan, asset ownership or beneficiary designations, consult your lawyer, accountant and appropriately licensed financial or insurance advisor. The right approach depends on your circumstances and the laws and tax rules in effect at the time.
Sami is a licensed life insurance advisor and may be compensated by insurers. Figures are simplified, at 2026 Ontario top rates, and assume shares with a nominal original cost. The illustration does not model tax on the holding company’s own shares at death, or post-mortem planning that may change the result. Confirm with your accountant and lawyer.
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Sami Majdalani is a licensed life and accident and sickness insurance agent in Ontario. Verify my licence on FSRA’s website. Insurance and segregated fund contracts are placed through HUB Financial, a managing general agency. Eagle Wealth Partners is paid by commission from the insurers whose products clients buy, and may also receive bonuses or other incentives from insurers. A full disclosure of the insurers we represent, how we are paid and any conflicts of interest is available on request.
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Information on this site is general and is not legal, tax or insurance advice for your situation. Planning is implemented with your legal and tax professionals. © 2026 Eagle Wealth Partners Inc.
