Section 85 rollovers: moving assets into a corporation

For tax, most property transfers happen at fair market value, even between closely connected people. So moving an appreciated asset — a building, goodwill, equipment or a whole unincorporated business — into a corporation would tax a gain that produced no cash. Section 85 of the Income Tax Act is the relief.

What a section 85 rollover actually does

Section 85 lets a taxpayer and a taxable Canadian corporation jointly elect to transfer eligible property at an agreed amount instead of fair market value, so the corporation’s cost equals the transferor’s proceeds. The gain is deferred, not eliminated: it sits in the shares received and the corporation’s lower cost base.

Work out your own date with the T2057 deadline calculator.

The CRA form used for the election under subsection 85(1) is Form T2057, Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation.

Not everything qualifies

The rules define eligible property. Most capital property and business inventory qualify; real property held as inventory is a notable exclusion. Cash needs no rollover, having no accrued gain. Sort each asset before drafting the election, because one ineligible asset in a bulk transfer can bring an unexpected tax bill.

The elected amount is the whole exercise

The agreed price is not a free choice. Broadly, it cannot fall below the tax cost of the property (with adjustments by property type) or exceed fair market value. Within that range it is chosen deliberately. Electing at tax cost defers the whole gain; electing higher realizes part of it, sometimes useful to use up losses or make room for the lifetime capital gains exemption on a future sale.

Shares, “boot” and what comes back

The corporation must give back shares as part of the consideration; that is what makes the election available. It can also give non-share consideration — cash, a promissory note or assumed debt — called “boot.” Both parties sign the election on form T2057. See what form T2057 requires and when it is due.

Boot is useful because it can be drawn down later without a dividend. But if it exceeds the elected amount, the excess generally produces an immediate income inclusion, defeating the rollover. Boot is one of the most common things corrected after the fact.

Where owners typically see one

• Incorporating an existing business. A sole proprietor with real accrued value — goodwill, equipment, a client list — usually cannot simply start a corporation and carry on. See our comparison of incorporating versus staying a sole proprietor.
• Inserting a holding company. Shares of an operating company can be rolled into a new holding company without triggering tax on the accrued share value.
• Estate planning. A rollover is often one step inside a larger reorganization such as an estate freeze.
• Pre-sale reorganizations. Moving non-business assets out of an operating company before a share sale so the shares can qualify for the exemption.

Filing, timing and the things that go wrong

The election deadline is tied to the parties’ tax returns; late filing is allowed only in limited cases and carries a penalty. The corporate-law steps must be done properly too: share subscriptions, directors’ resolutions, and a price-adjustment clause so the numbers can be corrected if the CRA disputes value. GST/HST and provincial property transfer taxes follow their own rules, separate from the income tax rollover.

The failures we see are rarely about the concept. They are about execution: an elected amount outside the permitted range, boot that exceeds it, a missing share, an unsupported valuation, or a transaction papered months after it supposedly happened.

The bottom line

A section 85 rollover is useful, and one of the more technical elections in Canadian tax. No template version is safe. If a transfer into a corporation is on the table, work through it with a CPA and a corporate lawyer on your facts before anything is signed. We have that conversation with owners as part of business advisory work, before the transaction, not after.

This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please speak with a CPA before acting on anything here.