Optimize Your Tax Strategy with Section 85 Asset Rollover
What is Section 85 Asset Rollover?
Section 85 Asset Rollover is a provision established by the Canadian government to facilitate the tax-deferred transfer of property to a Canadian corporation. Its primary goal is to support the continuity and growth of businesses by reducing the immediate tax burden that would typically arise from transferring assets at fair market value.
Through this mechanism, you can transfer qualifying assets to a corporation and defer the tax liability until a later date, which allows you to reinvest your funds into further business growth or development.
The Benefits of Section 85 Asset Rollover
Defer your tax liability
Tax-Deferred Transfer
Enhanced Business Growth
Comparison: Section 85 vs. Taxable Transfer
| Feature | Section 85 Rollover | Taxable Transfer |
|---|---|---|
|
Tax Deferral |
✅ Yes |
❌ No |
|
Requires CRA Filing (T2057) |
✅ Yes |
❌ No |
|
Allows Flexibility in Valuation |
✅ Yes |
❌ No |
|
Immediate Tax Impact |
❌ No |
✅ Yes |
How Does the Section 85 Asset Rollover Work?
Determine Eligibility
Identify if you qualify as an eligible transferor (individual, trust, corporation, or partnership).
Assess Eligible Property
Verify that the property being transferred qualifies under CRA regulations.
Identify Eligible Transferee
Ensure the recipient entity is a taxable Canadian corporation.
Valuation Process
Determine the adjusted cost basis and fair market value of the assets being transferred.
Select the Agreed Amount
Based on tax planning strategy, set an appropriate transfer value that aligns with your business goals.
Define Consideration Received
Establish the type of consideration (e.g., shares, cash) and ensure compliance with CRA requirements.
Complete Form T2057
Accurately complete and file Form T2057, the CRA Election Form for Section 85.
Submit Before the Deadline
Ensure timely filing to avoid penalties and ensure the rollover is accepted.
Real-Life Examples
A family business is transitioning ownership from a sole proprietorship to a corporation. By utilizing Section 85, they avoid triggering immediate tax consequences and preserve cash flow for future investments and expansion.
Joseph intends to establish a holding corporation and transfer the shares of his plumbing business to it, enabling him to pay tax-free dividends to his Holding Corp and invest the funds within the holding corporation. By utilizing a Section 85 rollover, he successfully transferred the shares of his plumbing company to the holding corporation without triggering any tax liabilities.
Deadline for Section 85 Asset Rollover
For example:
If John rolled over assets to his corporation on June 1, 2021, and the corporation’s fiscal year-end is December 31, the T2057 filing deadline would be April 30, 2022 (the earlier of April 30 and June 30, 2023).
Why Choose TMP for Your Section 85 Asset Rollover?
Educating Clients
We prioritize educating our clients, equipping them with the knowledge to make sound financial decisions for their future success.
Seasoned Experts
Our experienced team offers deep expertise, ensuring reliable and comprehensive solutions for all accounting and tax needs.
Personalized Solutions
Tailoring our services to each client's unique circumstances, we deliver customized solutions that address specific goals and challenges effectively.
Modern Approach
Embracing cutting-edge technologies and innovative methods, we provide efficient and forward-thinking accounting and tax services to meet the demands of today's business landscape.
Frequently Asked Questions (FAQs)
Find answers to common questions about Democracy
An eligible transferor includes individuals, trusts, corporations, and partnerships (if all partners are Canadian residents). Non-residents may also qualify, but additional restrictions apply.
An eligible transferee must be a taxable Canadian corporation, ensuring that future capital gains from the transferred property are taxable in Canada.
Yes, you can transfer real estate to a corporation under Section 85, provided it meets CRA’s eligibility criteria. However, land inventory is not eligible for rollover treatment.
Filing errors can result in CRA reassessing the transfer, potentially leading to unexpected tax liabilities. Working with a professional ensures accuracy and compliance.
Yes, intellectual property such as patents, trademarks, and copyrights can be transferred under Section 85, as long as they meet CRA’s eligibility requirements.
If the elected amount is higher than the original cost base of the asset, the excess amount may be treated as a capital gain and subject to tax.
Section 85 allows corporations to restructure efficiently by transferring assets into a new or existing entity without triggering immediate tax consequences, making it an effective tool for business reorganization.
Eligible properties include:
- Non-depreciable capital property (e.g., land, shares)
- Depreciable capital property
- Inventory (excluding real property inventory)
Intellectual property and resource property
Yes, many family businesses use Section 85 to transfer business assets from personal ownership to a corporation without triggering immediate tax consequences.
No, once a Section 85 election is filed with the CRA, it cannot be reversed. Proper planning and execution are crucial for maximizing the benefits of this tax-deferred strategy.
Yes, multiple assets can be transferred in a single transaction under Section 85, provided that all conditions for each asset are met.
How Much Does TMP Charge for Section 85 Asset Rollover?
We offer tailored packages to ensure that your Section 85 Asset Rollover is done correctly and efficiently, while minimizing tax liabilities.
Basic
Who It’s For:
Individuals or businesses transferring a single asset
Includes:
- - Section 85 Election Preparation
- - CRA Filing
- - Basic Tax Planning Advice
Expert
Who It’s For:
Corporations or individuals with a single asset and supplemental schedule filings
Includes:
- - Documentation Review
- - CRA Compliance Support
- - Additional Schedule Filings
Premium
Who It’s For:
Businesses transferring multiple assets, or requiring advanced tax planning
Includes:
- - Full Audit Representation
- - Advanced Tax Planning Services
- - Multiple Asset Transfers