Section 85 Rollovers
Move a business, investments or property into your corporation without paying tax on the gain today. We plan the rollover, prepare the T2057 election and file it on time.
What this means for you
Tax deferred, not triggered
Transfer property to a corporation for shares at an elected amount, so the gain isn't taxed today.
A structure that fits
Holding companies, share classes and ownership set up for creditor protection, family planning or a future sale.
Filed right, on time
The T2057 election and supporting calculations prepared carefully and filed by the deadline.
How we help
A section 85 rollover lets you transfer property such as a business, investments or real estate into a taxable Canadian corporation in exchange for shares. You and the corporation choose an elected amount between the property's tax cost and its fair market value, so the accrued gain can be deferred instead of taxed now.
It is the tool behind many reorganizations: incorporating a sole proprietorship, moving shares or investments into a holding company, freezing the value of a business for the next generation, or getting ready for a sale. We model the options, show you the tax result of each one, and walk you through it before anything is signed or filed. Your lawyer prepares the legal documents; we handle the tax side and work alongside them.
What's included
- Section 85 rollovers (T2057 / T2058)
- Incorporating an existing business
- Holding company structures
- Estate freezes and share reorganizations
- Amalgamations and wind-ups
- Pre-sale planning and capital gains calculations
Common reasons to use a section 85 rollover
Incorporating your business
Move a sole proprietorship’s equipment, goodwill and inventory into a new corporation for shares.
Adding a holding company
Transfer your operating company shares to a holding company to protect retained earnings.
Estate freeze
Lock in today’s value in preferred shares so future growth goes to your children or a family trust.
Preparing for a sale
Reorganize before a sale, or take part of the price in the buyer’s shares with tax deferred.
The key rules, in plain language
Who can use it
Individuals, corporations and trusts can transfer property to a taxable Canadian corporation. Partnerships use a related rule and Form T2058.
What property qualifies
Most capital property, such as shares, goodwill, equipment and real estate held as an investment, plus most inventory. Real estate held as inventory does not qualify.
You must receive shares
The corporation has to issue you at least one share. You can also take back cash, a note or have it assume debt (called “boot”).
Choosing the elected amount
You and the corporation agree on an amount between the property’s tax cost and its fair market value. It can’t be less than any boot you take back.
What a restructuring can look like
An example of two owners who run their business and keep its building and spare cash in one company. Using section 85, they move their shares into their own holding companies and put the building in a separate company, all without paying tax on the gains today.
Swipe sideways to see the whole chart.
Shares into holding companies
Each owner transfers their operating company shares to a new holding company for its shares. We file a T2057 for each transfer so the gain is deferred.
Building into its own company
The building moves to a property company under section 85. It rents the space back to the business, so the asset sits outside the business’s risks.
Cash moved up safely
Surplus cash goes up to the holding companies as intercorporate dividends. We check the safe-income rule in section 55(2) first, so a dividend isn’t taxed as a capital gain.
File the T2057 on time
The election is due by the earliest filing deadline of anyone involved for the year of the transfer. For a corporation that’s six months after its year-end; for an individual it’s April 30, or June 15 if self-employed.
- Filed late, within 3 yearsUsually accepted with a penalty of up to $100 a month, capped at $8,000.
- More than 3 years lateOnly accepted if the CRA agrees it would be just and equitable.
- Valuation challengedA price adjustment clause in the agreement protects you if the CRA disputes fair market value.
Does a section 85 rollover avoid tax completely?
No. It defers tax. The gain is postponed until you later sell or redeem the shares you received, so it usually makes sense when you plan to keep the business or property for a while.
Can I take cash out of the transfer?
Yes, as “boot”, but the elected amount must be at least the boot you receive, and taking too much can trigger tax now. We plan the mix of shares and boot with you before anything is signed.
Do I need a lawyer as well as an accountant?
Usually yes. Your lawyer prepares the transfer agreement and share issuance; we handle the tax planning, the valuation support, the T2057 election and the related tax returns, and work alongside your lawyer.
I missed the T2057 deadline. Is it too late?
Often not. A late election can be filed within three years of the deadline if the penalty is paid with it. Contact us as soon as possible, because the penalty grows each month.