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Section 85 Rollovers

A section 85 rollover allows taxpayers to transfer assets with an unrealized gain to a corporation without triggering a capital gain on a tax-deferred basis. This is an extremely valuable provision for business owners, especially during a corporation reorganization or when providing capital to a business.

How a section 85 rollover works

When you transfer assets to a corporation, you can decide if you want to make a “section 85 rollover” election. By making the election, it informs the CRA that you have transferred the assets on a tax-deferred basis. An election is only possible if as part of the transfer to the corporation, the taxpayer receives at least one share of the corporation in return (other rules also apply).

How a section 85 rollover works

When you transfer assets to a corporation, you can decide if you want to make a “section 85 rollover” election. By making the election, it informs the CRA that you have transferred the assets on a tax-deferred basis. An election is only possible if as part of the transfer to the corporation, the taxpayer receives at least one share of the corporation in return (other rules also apply).

Why use a section 85 rollover?

Some of the common examples of how we help clients by advising on section 85 rollovers are provided below:

01.

Owners of sole proprietorships can transfer assets on a tax-deferred basis when they decide to incorporate their business.

02.

Used frequently in corporation reorganizations, such as when transferring assets tax-deferred basis between operating companies and holding companies.

03.

When implementing an estate freeze, the rollover can be used to convert common shares to preference shares on a tax-deferred basis.

TIPS & TRICKS

Did you forget to make the election? It may not be too late, the election could still be made, but subject to penalties. Our tax lawyers can determine if penalties apply, and depending how late the election is, if it will be permitted by the CRA.

Are you not able to determine the fair-market value of the asset at the time of transfer? If the CRA considers the fair-market value to be higher than claimed by the taxpayer, they want to tax the excess. We can protect you against this by including price-adjustment clauses in the written transfer agreement.

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We can draft a written transfer agreement, and file the section 85 rollover election to the CRA on your behalf

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