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Section 85 rollover planner.

Model an Income Tax Act s. 85(1) tax-deferred transfer of property to a Canadian corporation. See the valid elected-amount range, the immediate capital gain at each choice, the ACB of the shares received, and the practical sweet spot most practitioners use.

  • Elected-amount range under s. 85(1)(b)–(c)
  • Immediate capital gain at your chosen elected amount
  • ACB of shares received under s. 85(1)(g) & (h)
  • Boot & PUC implications
Open the planner
Inputs & results

All amounts in Canadian dollars. Capital gains inclusion rate set to the standard 50%, adjust if the proposed 2024 inclusion-rate changes apply to your facts.

Property being transferred
$
The transferor’s tax cost in the property, for shares of an opco, typically the original subscription price or rollover-adjusted basis.
$
Consideration received from the corporation
$
Most planning caps boot at the ACB to preserve full deferral.
$
Must equal FMV of property minus boot for s. 85 to apply.
Election
$
Default set to ACB for full deferral. Adjust to model partial-gain crystallization (e.g., to use the lifetime capital gains exemption).
%
Top combined federal+provincial rate on 50% taxable portion of capital gains. Adjust by province.
Valid elected-amount range (s. 85(1)(b)–(c))
—

Must be at least the greater of (boot, ACB) and no more than FMV. Outside this range the election is invalid.

Election is within the valid range.
Tax outcome at chosen elected amount
Deemed proceeds (elected amount)
—
Less: ACB of property
—
Immediate capital gain (elected amount − ACB)
—
Taxable capital gain (50% inclusion)
—
Estimated tax payable today
—
ACB of shares received (post-rollover)
Elected amount
—
Less: boot received
—
ACB of shares received (s. 85(1)(g)–(h))
—
ACB per share
—
Deferred gain (future, when shares are sold)
—
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How s. 85 works

Transfer property to a corporation without triggering tax, today.

Section 85(1) is the workhorse of Canadian corporate reorganizations. Holdco/opco structures, estate freezes, post-mortem planning, butterfly transactions, all start with a s. 85 rollover.

1
Eligible property

Capital property, eligible capital property, inventory (other than real estate inventory), Canadian/foreign resource property, and some real property. Cash is excluded.

2
Joint election on T2057

Transferor and corporation jointly file Form T2057 by the earlier of either party’s tax return due date for the year of transfer.

3
Choose the elected amount

Must be at least the greater of (boot received, ACB) and no more than FMV. Choosing ACB defers all gain; choosing higher crystallizes some gain.

4
ACB of shares is set

ACB of preferred + common shares received = elected amount minus boot. The deferred gain reappears when those shares are eventually sold.

Common use cases

Where Section 85 rollovers fit in the planning toolkit.

Setting up a holdco to hold opco shares, freezing the value of an opco for estate purposes, contributing inventory or capital assets to a newly-formed CCPC at incorporation, post-mortem capital loss planning, and butterfly reorganizations all use s. 85 as the structural primitive. The rollover itself is mechanical; the strategy around it is what your tax advisor adds.

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FAQ

Common questions

To intentionally trigger some gain, most often to use the lifetime capital gains exemption (LCGE) on qualified small business corporation (QSBC) shares before the property is rolled in, or to use existing capital losses that would otherwise expire. The planner shows you the immediate-tax cost at the elected amount; the strategy decision is your advisor’s.

By the earlier of the transferor’s and the transferee corporation’s tax return due date for the year of transfer. Late filing is permitted for up to 3 years with a penalty of $100/month (capped at $8,000), provided the election is otherwise valid. After 3 years, the election is generally not accepted.

Boot in excess of the elected amount causes the elected amount to be re-deemed under s. 85(1)(b) to equal the boot, increasing the immediate gain dollar-for-dollar. If the boot exceeds the property’s FMV the entire rollover can be disqualified. Most practitioners keep boot well below ACB and use share consideration for the rest.

The PUC of shares received in a s. 85 rollover is generally limited under s. 85(2.1) to the elected amount minus boot, mirroring the ACB. Excess corporate-law paid-up capital is “ground” for tax purposes, preventing tax-free PUC distributions of the deferred gain.

This planner models s. 85(1), transfer to a taxable Canadian corporation by an individual, trust, or other corporation. Section 85(2) covers transfers from a partnership to a corporation and uses a slightly different mechanic; consult a tax advisor for partnership rollovers.

The signed T2057 jointly filed with CRA, board resolutions of the transferee corporation accepting the property and issuing the shares, an asset transfer agreement, and the corresponding entries in the share register. Octelligence handles the corporate-record side, resolutions, registers, certificates, so the post-rollover documentation matches the tax filing.
Related concepts

Section 85 sits at the heart of Canadian corporate planning.

Section 85 rollover
The mechanic itself, defined
Form T2057
The election form itself
Holdco / opco structure
Built on s. 85 rollovers
Estate freeze
Often executed via s. 85 + s. 86
Section 86 reorganization
Internal share-for-share exchange
Lifetime capital gains exemption
Sometimes crystallized via s. 85
Corporate Records Health Check
Verify the post-rollover record is clean
Cap Table Dilution Calculator
Model the resulting share structure
For holdco owners
Octelligence for owner-managed holding companies
A s. 85 rollover lives in the corporate record.

Octelligence captures the resolutions, the share issuance, the register entries, and the asset transfer in one place, so the post-rollover record matches what you filed with CRA.

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