WHAT IS A SECTION 85 ROLLOVER

A section 85 rollover enable a taxpayer (the transferor) to dispose of “eligible property” to a taxable Canadian corporation (the transferee), so that most, if not all, of the tax consequences which usually arise on such a disposition are shifted to the transferee corporation from the transferor. The transferor is permitted to dispose of the property to the transferee corporation for an “agreed amount” which may be other than the fair market value of either such property or the consideration received for it. This “agreed amount”, which is subject to the limitations, generally becomes the proceeds of disposition of the property to the transferor and the cost to the transferee. It also establishes the cost of the consideration receivable by the transferor from the transferee in return for the property transferred to the transferee.

Subsection 85(1) of the Income Tax Act will apply in any case where:

1. the transferee is a taxable Canadian corporation,

2. the property disposed of is “eligible property” described in subsection 85(1.1) of the Income Tax Act,

3. the transferor and the transferee make a valid joint election in the form authorized by the Minister (T2057) to invoke the provisions of subsection 85(1) of the Income Tax Act,

4. the consideration received by the transferor for the property disposed of to the transferee includes at least one share of the capital stock of the transferee, and

5. in the case of depreciable property of a prescribed class, subsection 13(21.2) of the Income Tax Act is not applicable.

From a Canadian corporate tax planning perspective, section 85 rollovers are one of the most common and significant corporate tax planning strategies. If your corporation requires the implementation of a section 85 rollover, or is looking for other corporate tax planning strategies, contact our law firm for a confidential initial consultation at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.