How we help
- Pipeline planning under Section 84(2) for tax-efficient cash extraction
- Section 164(6) loss-carryback for crystallized estate losses
- Section 88(1) bump strategy on amalgamated corporations
- Coordination with the spousal rollover under Section 70(6)
- Estate-freeze unwind options for ongoing operating businesses
- Insurance-funded post-mortem tax planning
- Executor compensation and trustee-tax-on-split-income screening
The terminal-year problem
When a Canadian shareholder dies, subsection 70(5) of the Income Tax Act deems them to have disposed of all their property — including shares of private corporations — at fair market value immediately before death. The resulting capital gain is taxed on the terminal T1. For an owner whose private-company shares have grown materially over time, the terminal tax bill can be substantial.
If the heirs then want to extract the corporation's cash (to fund the tax bill, to provide cash flow to the family, or to wind up the business), the cash distribution is normally taxed AGAIN — as a dividend in the recipient's hands. The result is double taxation: capital-gains tax at death plus dividend tax on the same dollars when distributed.
The pipeline solution
The "pipeline" strategy uses subsections 84(2), 88(1), and a series of corporate transactions to convert what would otherwise be a dividend distribution into a return of capital that is taxed at capital-gains rates (or not taxed at all, where the basis has already been stepped up). The mechanics:
- The estate inherits the deceased's shares at their stepped-up FMV (the cost base reset under subsection 70(5)).
- The estate transfers the shares to a newly-incorporated holdco under a tax-deferred Section 85 rollover, taking back debt of the holdco equal to the inherited cost base.
- The holdco and the original corporation amalgamate (or wind up the corporation into the holdco under Section 88(1)).
- The amalgamated corporation distributes its cash to the holdco as inter-corporate dividends (tax-free at the corporate level).
- The holdco repays the inherited-debt to the estate. The repayment is a return of capital, not a dividend — no further tax.
The result: the corporation's cash flows to the estate at capital-gains rates (paid at death), not at dividend rates (which would be paid on top).
The 36-month window
The pipeline structure must be planned and executed carefully. The most important timing rule: subsection 84(2) (the rule that allows distribution on wind-up to be characterized as proceeds of disposition rather than dividend) is best preserved by waiting at least 12 months between the inheritance and the wind-up of the corporation. The structural moves typically run over 12-24 months from death; the full execution window is 36 months.
The Section 88(1) bump
An additional and complementary strategy is the Section 88(1) bump. When a subsidiary corporation is wound up into its parent (or two corporations are amalgamated under Section 87), the adjusted cost base of certain assets of the merged entity can be "bumped" up to FMV — sheltering future gains on those assets from capital-gains tax. The bump is available on land, depreciable property, and shares (but not on inventory, intangibles other than goodwill, or accounts receivable).
For an estate inheriting a private corporation that itself owns appreciated real estate, the bump can shelter the next disposition of the real estate from a substantial gain — potentially saving as much as the pipeline does on the share extraction.
Section 164(6) loss carryback
If the deceased's estate triggers a capital loss in the first taxation year of the estate (often through a deliberate share-redemption or sale-to-related-party transaction), Section 164(6) allows that loss to be carried back to the deceased's terminal T1 and applied against the deemed-disposition capital gain. This is the simplest of the post-mortem strategies and frequently used in tandem with the pipeline.
Spousal-rollover deferral
Where the deceased's shares pass to a spouse (or to a qualifying spousal trust), subsection 70(6) provides an automatic rollover at the deceased's cost base — deferring the capital gain to the spouse's eventual disposition or death. The spousal rollover is the right answer when the spouse intends to hold the shares; it's the wrong answer if the spouse plans to sell or wind up the corporation immediately, since the rollover prevents the cost-base step-up that pipeline planning relies on.
Insurance funding
Many succession plans use corporate-owned life insurance specifically to fund post-mortem tax. The death benefit pays into the corporation's capital dividend account (CDA), which the estate can extract as a tax-free capital dividend. The CDA-distributed proceeds offset the estate's capital-gains tax dollar-for-dollar — turning the insurance proceeds into an after-tax estate funding source.
How we work the file
Post-mortem engagements typically start within weeks of death and run for 12-24 months. We design the strategy in the first 60 days, coordinate the inherited-cost-base documentation with the accountants, implement the Section 85 rollover and pipeline structure, and handle the wind-up. Most engagements are fixed-fee for the planning phase and hourly for execution.
What to expect when you call us
Your first call is a free, no-obligation consultation with a tax lawyer. We will review the details of your situation, explain your options under the Income Tax Act and CRA administrative practice, and give you a clear, fixed-fee quote if you choose to retain us. Your consultation is confidential, and once we are retained, communications are protected by solicitor–client privilege.
If you retain us, we begin work within 24 hours of being retained.
Frequently asked questions
What does Barrett Tax Law do?
Barrett Tax Law is a Canadian tax law firm that represents individuals and businesses in disputes with the Canada Revenue Agency and in tax planning. The practice covers CRA audits and reassessments, Notices of Objection, appeals to the Tax Court of Canada, the Voluntary Disclosures Program, tax-debt and collections matters, director and derivative (section 160) liability, and GST/HST disputes.
On the planning side, the firm advises owner-managers and incorporated professionals on corporate structure, the Lifetime Capital Gains Exemption, estate freezes and succession, and Canada–U.S. cross-border issues. Because tax lawyers can assert solicitor-client privilege, a tax lawyer is often retained where an accountant cannot protect sensitive communications. Initial consultations are free.
Is the consultation really free?
Yes. Most cases qualify for a free, no-obligation consultation with one of our tax lawyers. During the call we'll review your situation, explain your options, and give you a clear quote if you decide to retain us.
What does a tax lawyer do that an accountant does not?
A tax lawyer focuses on the legal side of tax — disputes, litigation, and the structuring of transactions in light of the law and anti-avoidance rules. That includes representing taxpayers in CRA audits and objections, appearing at the Tax Court of Canada, defending penalties and director or derivative liability, and designing reorganizations such as section 85 rollovers and estate freezes.
The most practical distinction is privilege. Communications with a lawyer are generally protected by solicitor-client privilege, while communications with an accountant generally are not and can be demanded by the CRA. Where the facts are sensitive or the matter could become contentious, that protection matters.
Lawyers and accountants often work together — the accountant on the numbers and filings, the lawyer on strategy, privilege, and the legal record. Barrett Tax Law regularly coordinates with a client's existing accountant.
Should I incorporate my new business or operate as a sole proprietor?
It depends on your numbers and your tolerance for risk. A sole proprietorship is the quickest and least expensive structure to start and run: there is no separate tax return, and you simply report the business profit on your personal T1. The trade-offs are that all of the profit is taxed in your hands in the year it is earned, and there is no liability shield — if the business is sued, you are sued.
A corporation is a separate legal person. It can shield your personal assets from most business liabilities, and a qualifying Canadian-controlled private corporation pays a much lower rate on active business income up to $500,000 (roughly 12.2% in Ontario), which lets you leave surplus profit in the company on a tax-deferred basis. A useful rule of thumb: if your business reliably earns more than you need to live on, a corporation is often the sensible choice; if there is no surplus at month-end, the simplicity of a proprietorship may win.
A free consultation can help you weigh the structures against your actual situation before you commit.
Do you serve all of Canada?
Yes. Barrett Tax Law represents clients across Canada. We have offices and local phone lines in Toronto, Calgary, Edmonton, Fort McMurray, Ottawa, Vancouver, and Winnipeg, plus a national toll-free line at 1-877-882-9829.
Who is Barrett Tax Law and what areas does the firm handle?
Barrett Tax Law is a Canadian boutique tax law firm that represents individuals and businesses in their dealings with the Canada Revenue Agency. The firm's work spans CRA audits and disputes, voluntary disclosures, Tax Court of Canada litigation, collections matters, and corporate and estate tax planning.
The firm was founded in 2009 and has represented many thousands of clients across Canada. Its head office is in Concord, Ontario (Vaughan), and it serves clients nationwide. You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX).
Most matters qualify for a free, no-obligation consultation, and most are quoted on a fixed-fee basis once scope is understood, so the cost is known before work begins.
What does a tax lawyer do that an accountant cannot?
Accountants prepare returns and financial statements. Tax lawyers represent you when those returns are challenged, audited, or prosecuted — and our communications are protected by solicitor–client privilege, which accountant communications generally are not.
What should I do if I receive a letter from the CRA?
First, identify what the letter is and what it requires. A CRA letter may open an audit, ask for documents, propose adjustments (a proposal letter), confirm a reassessment, or start collection action — and each carries its own deadline and its own implications. Note any date by which a response is required.
Do not ignore it, and be careful about responding off the cuff. What you say and produce can shape your later objection and appeal position, and casual admissions can be difficult to undo. If the letter proposes adjustments or penalties, or if significant amounts are involved, get advice before responding.
A free consultation can help you understand the letter, the deadline, and the right next step. Acting early — while options are still open — is usually far better than waiting until a deadline is near.
Will the CRA criminally prosecute me?
Most CRA disputes are civil. Criminal prosecution is reserved for serious tax evasion or fraud, usually involving deliberate misrepresentation. If you have unreported income, a voluntary disclosure is one of the standard ways to reduce criminal-prosecution risk.
Is the first consultation really free?
Yes. Most matters qualify for a free, no-obligation consultation with an experienced tax lawyer. The consultation is a chance to describe your situation, get a clear sense of the options and likely path, and receive a fee structure in writing before you commit to anything.
You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX) to arrange a confidential consultation. The head office is in Concord, Ontario (Vaughan), and the firm serves clients across Canada.
Are my communications with a tax lawyer confidential?
Yes. Communications between you and your lawyer for the purpose of obtaining legal advice are generally protected by solicitor-client privilege, one of the most strongly protected confidences in Canadian law. In practical terms, the CRA generally cannot compel disclosure of privileged communications.
This is an important difference from working with an accountant or other non-lawyer representative, whose communications and working papers can generally be demanded by the CRA. Where the facts are sensitive — unreported income, offshore assets, or potential penalties — that protection can be significant.
Privilege has limits and can be waived inadvertently, so it should be handled with care. A consultation can explain how privilege applies to your particular situation.
How fast can you start on my case?
We typically begin work within 24 hours of being retained. For audit deadlines, Notices of Objection, and other time-sensitive matters, we move immediately.
What if I have unfiled tax returns from many years ago?
We routinely handle 5+ years of unfiled returns. Through the Voluntary Disclosures Program — applied for before the CRA contacts you — we can usually eliminate gross-negligence penalties and limit interest exposure.
How long do I need to keep my business records, and do I need original receipts?
As a general rule, keep your records for six to seven years. Under the Income Tax Act the six-year period runs from the end of the tax year the records relate to. Although the Canada Revenue Agency can ordinarily reassess income tax for three years and GST/HST for four, keeping records a little longer is wise because the agency can reach back further where it suspects fraud or gross negligence. Records tied to buying or selling property should be kept indefinitely, because you need them to compute the correct capital gain on disposition.
On receipts: strictly speaking, the Income Tax Act does not require an original receipt to claim most business expenses — but if an auditor asks for the original and you can only produce a photocopy, scan, or credit card statement, the expense may be denied. The practical answer is to keep everything an auditor might want, including originals (plus a scan, since some receipts fade), and to back up your records offsite.
What does a Canadian tax lawyer actually do?
A Canadian tax lawyer advises on and litigates tax matters. On the dispute side, that means representing taxpayers in CRA audits, filing Notices of Objection, and appearing at the Tax Court of Canada and the Federal Court — work that requires legal training and rights of audience an accountant does not have. On the planning side, it means structuring transactions, corporations, and estates to be tax-efficient and defensible.
Two features distinguish a tax lawyer from an accountant: solicitor-client privilege, which protects sensitive communications from disclosure to the CRA, and the ability to argue a case in court. Tax lawyers and accountants frequently work together, with the lawyer handling disputes, privileged questions, and complex planning while the accountant handles compliance.