The Business Succession Strategy Most Owners Have Never Been Told About

Brought to you by CFIB's Succession Start in collaboration with People Corporation

(Article written by People Corporation)

If you’re in business with partners, comprehensive and well thought out succession planning is a must. When we review our clients’ succession plans, we see a common theme. They've checked the boxes: life insurance is in place, and their shareholder agreement is sound. They’re preparation has them feeling confident that if something happened to one of them, the arrangements in place would equip the other to continue running the business.

What’s missing

A well-structured plan can make an enormous difference in what happens in the event of a tragedy. Even with a lot of preparation and ensuring the right elements are in place, wording and structure can have a huge impact on how things play out at a critical time. Sometimes two versions of what look to be almost identical on paper land differently in practice and in some cases, make a huge difference in costs.

The roll and redeem strategy

Often, the arrangement strategy that captures the better outcome is the roll and redeem strategy. It's been available under Canadian tax law for decades. Most business owners who aren’t using this option are missing out on a more beneficial outcome in the event of the death of a partner.

First, the setup — how most buy/sell arrangements work

The most common buy/sell structure is a corporate-owned buy/sell:

The company takes out a life insurance policy on each of the owners
If one of the owners dies, the insurance proceeds are paid to the company
The company buys back or redeems the deceased's shares from the estate.

This arrangement is simple, administratively clean, and the premiums are paid in corporate dollars, which is generally more efficient than paying them personally. But this scenario presents a problem. Some shareholder agreements, set up the redemption directly from the estate to the company. The deceased's shares go to the estate, and then to the company. From a tax perspective, an opportunity has been missed.

When shares move directly from an estate to a corporation, the CRA treats the transaction as a taxable sale. The estate assumes a capital gain on the full appreciated value of the shares, which at a 50% inclusion rate can mean a tax bill well north of a million dollars on a mid-sized business. Beyond that, the company loses access to the Capital Dividend Account (CDA) which would have allowed the surviving shareholders to pull future profits out of the company tax-free. With the right agreement wording and strategy in place, the tax hit on the estate and the lost CDA benefit would have been avoided.

The outcome of using the roll and redeem strategy

Putting the right documents and protocol in place requires expertise and experience. Following the roll and redeem strategy,

The deceased partner’s shares roll over to their surviving spouse/common law partner. Under section 70(6) of the Income Tax Act, a transfer of assets to a surviving spouse can happen at the deceased's adjusted cost base rather than fair market value, which means no deemed disposition, no capital gains, and no tax bill on the estate at that point.
The company buys back the shares from the spouse, using the insurance proceeds. Because the shares passed through the spouse first, the transaction qualifies for a more favourable tax treatment. The estate avoids the capital gains tax, and the company maintains access to the CDA. The spouse receives the full fair market value of the shares, largely tax-free, because the cost base was stepped up through the rollover.

The same insurance and buyout but following a different sequence results a completely different outcome.

Let’s look at the numbers

Take a business worth $10 million, two equal partners, corporate-owned insurance of $5 million on each partner. One partner passes away.

	Standard Corporate Redemption	Roll & Redeem
Capital Gains tax on the estate	$1.3M+	$0 (deferred via spousal rollover)
CDA credit available to the surviving partner	Lost	Preserved (~$5M in future tax-free distribution)
The spouse receives	$5M minus taxes	$5Mm largely tax-free

These numbers are illustrative. The actual figures depend on the ACB of the shares, the policy's adjusted cost basis, the structure of the company, and a few other variables your accountant will need to assess. But the directional picture is real, and in our experience, it holds up across a wide range of business sizes and structures.

Why isn’t this the golden standard?

A successful roll and redeem strategy requires three elements be executed by three unique professionals:

a shareholder agreement drafted by a lawyer
a life insurance policy set up by an insurance advisor
a tax structure reviewed by an accountant

Three professionals, not necessarily communicating with each other, bringing their expertise to create a sound strategy.

The agreement must specifically contemplate the rollover to ensure it’s set it up correctly. Insurance that isn't coordinated with the legal structure won't flow into it the right way. And by the time an accountant spots the issue, the documents have been signed possibly for years and fixing them would require all parties to come back to the table.

This isn’t a complicated strategy, but it does require the right expertise at the right time, before anything is signed.

Is this the right structure for every situation?

The roll and redeem strategy is effective if the deceased partner has a surviving spouse or common law partner and works best when the insurance coverage is reasonably well-aligned with the current business value, which is worth checking regularly as the company grows. There are situations where other structures — a pipeline, a holding company arrangement, a different insurance ownership model — may do more for a particular set of circumstances.

Putting a strategy in place

If you have a business partner, corporate-owned life insurance, and a shareholder agreement, it's worth the time to research and assess they interact. In many cases, a minor adjustment to the agreement can mean the difference between the outcome you think you've planned for and the one that would actually plays itself out if the agreement is left as is.

Get a report based on your specific numbers

Through CFIB's Succession Hub, you’re eligible for a free Business Owner Succession Report provided by People Corporation that will model the difference between a standard corporate redemption and a roll and redeem strategy. The report will be created using your actual business value, your insurance coverage, and your current ownership structure.

This isn’t a sales tool; it's access to a clear illustration of how outcomes can change because of small shifts in in wording and sequence.

Take it to your accountant, your lawyer, or use it to start the conversation with your business partner. If the structure you have in place is already optimized, that’s great — you'll have confirmation. If it's not, better to know now.

This article is for general information purposes only and isn't a substitute for legal or tax advice. The roll and redeem strategy involves complex tax and legal considerations that vary depending on individual circumstances — always work with a qualified advisor before making changes to your shareholder agreement or insurance structure.

June 16, 2026

Topics in this Article: Succession

The Business Succession Strategy Most Owners Have Never Been Told About