Unlock the Secret to Tax-Free Business Growth: A Guide to Section 85 Rollovers for Canadian Families

Unlocking the Power of Section 85 Rollovers

Imagine you’ve spent years building your family business—your life’s work. It’s grown beyond what you ever dreamed, and now you’re looking to take the next step. Maybe you’re thinking about incorporating your business, preparing for succession, or optimizing your corporate structure to support long-term growth. The last thing you want is for taxes to chip away at the wealth and legacy you’ve worked so hard to create.

This is where a Section 85 rollover comes in. It’s not just a tool for deferring taxes; it’s a gateway to strategic planning for family-owned enterprises in Canada. By leveraging this provision in the Income Tax Act, you can transfer eligible assets to a corporation without triggering immediate tax liabilities—a smart move for businesses looking to grow while protecting their bottom line.

In this blog, we’ll walk you through the essential conditions of a Section 85 rollover, including:

• What is required for a valid rollover, such as the role of a taxable Canadian corporation and the types of property eligible for this tax-deferral strategy.
• Key procedural steps, like filing Form T2057, and how to ensure compliance with CRA regulations.
• Real-world examples of how family-owned businesses have used Section 85 rollovers to their advantage.

Whether you’re just starting to explore corporate restructuring or you’re ready to make a strategic move, this guide will help you understand how a Section 85 rollover can safeguard your wealth and support your ambitions. Let’s dive in!

 

Understanding the Foundation: Essential Conditions for Section 85 Rollovers

In the realm of Canadian tax law, Section 85 rollovers are an indispensable tool for tax-efficient property transfers to a corporation. These rollovers are particularly valuable for family-owned enterprises looking to structure or reorganize their businesses strategically. However, to fully leverage this tax-deferral mechanism, it is essential to understand the mandatory requirements and procedural steps involved. In this section, we’ll break down the fundamental conditions for a Section 85 rollover, explain the critical role of a taxable Canadian corporation, and highlight the importance of filing form T2057. Additionally, we’ll provide practical examples of how these rules apply to family-owned businesses.

The Role of a Taxable Canadian Corporation as the Transferee

At the core of any Section 85 rollover is the requirement that the transferee must be a taxable Canadian corporation. This distinction ensures that the transaction is subject to Canadian tax laws and falls within the scope of Section 85 of the Income Tax Act. A taxable Canadian corporation is defined as a corporation resident in Canada and not exempt from tax under Part I of the Income Tax Act. Common examples include private corporations owned by Canadian families, often used to operate businesses or hold investments. By limiting eligibility to taxable Canadian corporations, the legislation ensures that the tax deferral applies only to businesses within Canada’s tax jurisdiction. This prevents abuse of the provision for offshore or tax-exempt entities. Family-owned corporations can use Section 85 rollovers to restructure their ownership or transfer assets into a holding company. This is especially useful for estate planning, intergenerational transfers, or preparing for a sale.

Overview of Eligible Property under Section 85(1.1)

Not all property qualifies for a Section 85 rollover. Understanding what constitutes eligible property is crucial to structuring the transaction correctly. Section 85(1.1) defines eligible property as including specific asset categories but excludes others. Eligible property includes capital property such as real estate, shares of a corporation, and other investments held for long-term purposes. It also includes Canadian and foreign resource properties and certain types of inventory not part of the normal sales process. However, cash and accounts receivable are explicitly excluded because their transfer does not involve the same tax deferral considerations. Other exclusions include prepaid expenses and intangible rights, as these do not fit the definition of capital property or other eligible categories. Before initiating a Section 85 rollover, conducting a detailed review of the property to identify which assets qualify and strategizing around excluded property is essential to maximize tax efficiency. For example, a family owning a business through a sole proprietorship can transfer their building, equipment, and goodwill to the corporation under Section 85 but retain their accounts receivable and cash. This ensures compliance while optimizing the tax benefits.

Key Procedural Step: Filing Form T2057

The administrative cornerstone of a Section 85 rollover is the joint election filed using form T2057. This form documents the agreed amount for the transfer and ensures that the Canada Revenue Agency (CRA) recognizes the transaction as a Section 85 rollover. Both the transferor (the individual or entity transferring the property) and the transferee (the taxable Canadian corporation receiving the property) must sign and file the form jointly. The form must be filed by the earlier of the transferor’s or transferee’s tax return filing deadlines. Late filings are subject to penalties of $100 per month, up to a maximum of $8,000. Form T2057 requires a detailed description of the property being transferred, the agreed amount which determines the tax impact, the fair market value (FMV) of the property, and the consideration received, typically a combination of shares and “boot” (cash or other non-share consideration). Accuracy is critical, as errors or omissions can lead to adverse tax consequences, including the CRA denying the rollover or assessing penalties. For example, a family business owner transferring shares of their operating company to a holding company as part of an estate freeze would jointly file form T2057, electing an agreed amount equal to the adjusted cost base of the shares. This defers the capital gains tax until the shares are eventually sold.

Practical Applications for Family-Owned Businesses

Section 85 rollovers are particularly relevant to family-owned enterprises in Canada. Here are a few scenarios where understanding these foundational conditions proves essential. Incorporating a sole proprietorship: A sole proprietor transferring their business assets into a newly formed corporation can use a Section 85 rollover to defer taxes on the transfer. This allows the proprietor to obtain shares in the corporation without triggering immediate tax liabilities. Intergenerational transfers: Parents planning to transfer their business to their children can use Section 85 to roll over eligible assets into a corporation owned by the next generation. This facilitates succession planning while minimizing immediate tax costs. Estate planning: Rolling assets into a family trust or holding company ensures that wealth is preserved and distributed according to the family’s long-term goals. Preparing for a business sale: Entrepreneurs looking to sell their business can first use a Section 85 rollover to consolidate assets in a corporation, making the sale process more tax-efficient.

Conclusion

Mastering the foundational conditions of a Section 85 rollover is critical for any family-owned business looking to leverage this powerful tax-deferral tool. By ensuring that the transferee is a taxable Canadian corporation, carefully reviewing eligible property, and accurately filing form T2057, business owners can unlock significant tax savings and pave the way for strategic growth. At Shajani CPA, our deep expertise in accounting and tax law equips us to guide your business through these complexities with confidence. Whether you’re incorporating, planning for succession, or preparing for a sale, our team is here to help you navigate every step of the process.

 

What Counts as Eligible Property? The Crucial Definitions

A thorough understanding of what constitutes eligible property is essential for successfully executing a Section 85 rollover. This step ensures compliance with the Income Tax Act and maximizes the tax-deferral benefits of the transaction. Not all assets qualify, and knowing the differences between eligible and ineligible property is critical. This section explores the types of eligible property, exclusions, practical examples, and tips for conducting a property audit before initiating a rollover.

Eligible Property Types: The Core Categories

Eligible property under Section 85(1.1) falls into three primary categories: capital property, Canadian and foreign resource properties, and certain types of inventory. Each plays a unique role in determining whether a rollover can be applied.

Capital Property:
Capital property includes assets held for long-term purposes, such as investments and property used to earn income. Examples of capital property include real estate, shares of a corporation, bonds, or equipment used in a business. Family-owned businesses often transfer real estate (e.g., the building where the business operates) or shares of a company into a holding corporation under Section 85. This transfer allows for continuity of operations while deferring the tax liability associated with capital gains.

Canadian and Foreign Resource Properties:
These include assets related to resource extraction industries, such as oil and gas or mining. While not as common in family-owned enterprises, these assets qualify for Section 85 rollovers and provide a tax-efficient way to restructure ownership or consolidate operations.

Inventory:
Certain types of inventory can qualify as eligible property, provided they are not part of the normal course of business sales. For instance, a retailer cannot transfer its standard inventory of goods, but specialized inventory such as equipment parts or high-value items held for investment purposes may be eligible.

Excluded Property: Assets That Do Not Qualify

Understanding which assets are excluded from Section 85 rollovers is just as important as knowing what qualifies. Excluded property typically includes assets that do not fit within the defined categories of eligible property.

Cash and Accounts Receivable:
Cash and accounts receivable are explicitly excluded from Section 85 rollovers. The reasoning is straightforward: these assets are considered liquid and do not benefit from tax-deferral mechanisms in the same way as long-term capital assets. For example, if a business owner wants to incorporate their sole proprietorship, they must retain their cash and accounts receivable or transfer them separately outside the rollover.

Prepaid Expenses and Intangible Rights:
Prepaid expenses and intangible rights, such as customer lists or licenses, also do not qualify as eligible property. These exclusions are designed to limit the rollover to tangible and substantial business assets that carry a calculable cost base and fair market value.

Example Scenario:
Consider a family-owned retail business that is transferring assets to a newly formed corporation under Section 85. The business owns a commercial property, inventory of specialty equipment parts, cash, and customer lists. In this case, the commercial property and specialty inventory qualify for the rollover. However, the cash and customer lists must be handled outside the Section 85 transaction.

Practical Examples of Eligible and Ineligible Property in Family Business Scenarios

Example 1: Incorporating a Sole Proprietorship:
A sole proprietor operates a construction business and wants to incorporate. They own a warehouse (capital property), heavy machinery (capital property), and a significant amount of accounts receivable. The warehouse and machinery qualify for a Section 85 rollover, but the accounts receivable must be excluded or transferred separately.

Example 2: Transferring Shares to a Holding Company:
Parents own shares in their operating company and wish to move them into a holding corporation as part of an estate freeze. Shares qualify as eligible property, making this transfer ideal for a Section 85 rollover. The parents can exchange the shares for shares in the holding company without triggering immediate capital gains taxes.

Example 3: Real Estate Consolidation:
A family-owned business holds multiple real estate properties across different corporations and wants to consolidate them into a single entity. The properties qualify as capital property and can be transferred under Section 85, facilitating better asset management and tax efficiency.

Pro Tip: Conducting a Property Audit Before Initiating a Rollover

Before proceeding with a Section 85 rollover, it is crucial to perform a comprehensive property audit to identify eligible and ineligible assets. This proactive step ensures compliance with tax regulations and maximizes the transaction’s benefits.

Steps for a Property Audit:

1. Inventory All Assets: Create a detailed list of all business assets, including their adjusted cost base (ACB) and fair market value (FMV).
2. Categorize Assets: Divide the assets into eligible and ineligible categories based on the definitions provided in Section 85(1.1).
3. Plan for Excluded Assets: Develop a strategy for handling excluded assets, such as transferring them separately or retaining them outside the corporation.
4. Consult a Professional: Work with a tax expert to ensure accurate valuations and compliance with CRA rules.

Conducting a property audit not only streamlines the rollover process but also helps identify opportunities for optimizing the agreed amount and other key considerations in the transaction.

Conclusion

Understanding what counts as eligible property under Section 85 is vital for structuring successful rollovers. By focusing on capital property, resource properties, and certain types of inventory while accounting for exclusions like cash and accounts receivable, family-owned businesses can effectively use this provision to their advantage. Performing a property audit and consulting with a tax expert ensures compliance, minimizes risks, and unlocks the full potential of tax deferral. With Shajani CPA, you gain access to unparalleled expertise in navigating these complexities, making your asset transfers seamless and strategically sound.

 

Agreed Amounts and Consideration: Structuring the Transaction

A Section 85 rollover is built around the concept of the “agreed amount,” which plays a pivotal role in determining the tax implications for both the transferor and the transferee. Structuring this transaction properly requires a nuanced understanding of the agreed amount, the types of consideration involved, and the importance of fair market value. This section provides a detailed exploration of these concepts and offers strategic advice for optimizing the transaction.

The “Agreed Amount” Concept and Its Implications

The agreed amount is the cornerstone of a Section 85 rollover. It is the amount the transferor and transferee mutually decide upon as the transfer price of the eligible property being rolled over. This figure has significant tax implications for both parties, as it directly affects the determination of capital gains, adjusted cost base (ACB), and paid-up capital (PUC).

Definition and Key Characteristics:

• The agreed amount is jointly elected by the transferor and transferee and must fall within a specific range:
  • It cannot exceed the fair market value (FMV) of the property being transferred.
  • It cannot be less than the greater of the property’s adjusted cost base (ACB) or the value of any non-share consideration (boot) received.
• The agreed amount becomes the transferor’s proceeds of disposition and the transferee’s cost for the property.

Implications for the Transferor:

• If the agreed amount equals the ACB, the transaction triggers no immediate capital gain or loss, allowing for full tax deferral.
• If the agreed amount exceeds the ACB, the transferor realizes a capital gain on the difference, which is taxable.
• Conversely, setting the agreed amount below the ACB results in a capital loss, which may have limited deductibility depending on the property type.

Implications for the Transferee:

• The agreed amount determines the transferee’s cost base for the acquired property.
• A lower agreed amount reduces the transferee’s depreciation or amortization claims but defers tax liabilities for the transferor.

Types of Consideration: Shares, Boot, and Their Tax Impact

The consideration received by the transferor in a Section 85 rollover typically includes shares of the transferee corporation and, in some cases, additional non-share consideration, referred to as boot. Understanding the tax implications of each type of consideration is crucial for structuring the transaction effectively.

Shares:

• The transferor usually receives shares in the transferee corporation as part of the rollover.
• The type of shares issued (common or preferred) can impact the adjusted cost base (ACB) and paid-up capital (PUC).
• The ACB of the shares is based on the agreed amount allocated to them, minus any boot received.

Boot (Cash or Other Assets):

• Boot refers to any non-share consideration, such as cash or other property, received by the transferor.
• The value of the boot is included in the proceeds of disposition for the transferor, potentially triggering an immediate tax liability.
• To minimize tax, the transferor may limit the boot or ensure that the agreed amount exceeds the value of the boot.

Strategic Allocation of Consideration:

• Allocating a higher proportion of the agreed amount to shares rather than boot maximizes tax deferral.
• Issuing preferred shares can be useful for estate freezes or transactions involving multiple parties, as they allow for precise valuation and control of the corporation.

Fair Market Value and Its Role in Compliance

Fair market value (FMV) is a critical factor in structuring a Section 85 rollover. The CRA requires that the total FMV of the consideration (shares plus boot) equals the FMV of the property being transferred. Discrepancies can lead to adverse tax consequences, including penalties or the denial of the rollover election.

Ensuring FMV Compliance:

• The FMV of the transferred property must be determined accurately through professional appraisals or valuations.
• Any mismatch between the FMV of the property and the consideration received may result in deemed proceeds of disposition, potentially triggering additional tax liabilities.

Example Scenario:
A family-owned corporation transfers real estate valued at $500,000 to a newly formed holding company. The agreed amount is set at $300,000, with $250,000 allocated to preferred shares and $50,000 to cash (boot). If the FMV of the shares and boot does not match the $500,000 FMV of the property, the CRA may reassess the transaction.

Strategic Advice: Balancing Shares and Boot to Optimize Tax Outcomes

Structuring the agreed amount and consideration in a Section 85 rollover requires careful planning to balance immediate tax liabilities with long-term tax efficiency. Here are key strategies to optimize outcomes:

1. Minimize Immediate Tax Impact:

• Set the agreed amount close to the ACB to defer capital gains and avoid immediate tax liabilities.
• Limit the value of boot to ensure it does not exceed the agreed amount, which would trigger taxable gains.

2. Align with Long-Term Goals:

• Use preferred shares to freeze the value of the transferred property, allowing future growth to accrue to common shares held by other family members.
• Allocate the agreed amount strategically to support future corporate transactions, such as mergers, acquisitions, or additional rollovers.

3. Leverage Professional Expertise:

• Engage a tax expert to perform a detailed analysis of the property’s FMV and ACB.
• Ensure proper documentation, including valuation reports and a completed T2057 form, to support the election.

Example Scenario:
Parents transferring shares of their family business to a holding company may set the agreed amount equal to the ACB of the shares ($200,000) to defer all tax liabilities. They receive preferred shares valued at $180,000 and $20,000 in cash (boot). This structure balances the need for liquidity with tax efficiency while maintaining compliance with FMV rules.

Conclusion

The agreed amount and consideration are central to the success of a Section 85 rollover. By understanding the implications of the agreed amount, carefully structuring the types of consideration, and adhering to fair market value requirements, family-owned businesses can achieve significant tax savings while maintaining compliance. At Shajani CPA, our team of experts is uniquely positioned to help you navigate these complexities and optimize your corporate transactions. Reach out to us to ensure your Section 85 rollover is structured for maximum benefit.

 

Fair Market Value and Tax Implications: Navigating Pitfalls

Fair market value (FMV) is a fundamental concept in a Section 85 rollover, serving as the benchmark for determining the agreed amount, consideration, and the tax implications for both the transferor and transferee. Missteps in handling FMV can lead to significant adverse tax consequences, potentially undermining the benefits of the rollover. In this section, we delve into the interplay between consideration and FMV, explore the pitfalls of exceeding asset FMV in consideration, and outline strategies to ensure the tax deferral benefits of a Section 85 rollover remain intact.

The Interplay Between Consideration and Fair Market Value

In a Section 85 rollover, the total consideration received by the transferor—comprising shares and any non-share consideration (boot)—must equal the FMV of the transferred property. This equality is not merely a best practice but a legal requirement to ensure compliance with Canadian tax laws.

Understanding Fair Market Value:

• FMV represents the price that an asset would fetch in an open and competitive market between willing buyers and sellers, both acting prudently and without undue pressure.
• Determining FMV requires a robust valuation process, often involving professional appraisals for assets such as real estate, shares, or specialized equipment.

Interplay with Consideration:

• The FMV of the transferred property must be matched by the FMV of the consideration (shares plus boot) received by the transferor. Any mismatch can trigger deemed proceeds of disposition, which may result in unexpected tax liabilities.
• For example, if a business owner transfers equipment worth $300,000 and receives shares valued at $250,000 and cash (boot) of $40,000, the $10,000 shortfall could lead to adverse tax consequences unless properly documented.

Adverse Tax Consequences of Exceeding Asset FMV in Consideration

One of the most common pitfalls in Section 85 rollovers is issuing consideration—either in the form of shares or boot—that exceeds the FMV of the transferred property. This can lead to several undesirable outcomes:

1. Deemed Proceeds of Disposition:

• If the FMV of the consideration exceeds the FMV of the property, the CRA may assess the transferor on the excess amount as deemed proceeds of disposition, potentially triggering a capital gain.
• For example, if property with an FMV of $500,000 is transferred but the consideration issued totals $550,000, the $50,000 excess could be deemed a taxable capital gain.

2. Inflation of Paid-Up Capital (PUC):

• Overvaluation of shares issued as consideration can inflate the paid-up capital (PUC), which may later result in higher taxable dividends when the shares are redeemed or distributed.
• For example, if $600,000 in shares is issued for property worth $500,000, the excess PUC of $100,000 may lead to higher taxes on future distributions.

3. Potential Penalties:

• Failure to align FMV with consideration can result in CRA penalties or reassessments, especially if the discrepancies suggest non-compliance or attempts to evade taxes.

Strategies to Ensure the Rollover’s Tax Deferral Remains Intact

To preserve the tax-deferral benefits of a Section 85 rollover, careful planning and adherence to FMV principles are essential. Below are strategies to navigate the complexities of FMV and ensure compliance:

1. Accurate Asset Valuations:

• Engage professional appraisers or valuation experts to determine the FMV of the property being transferred. This step is especially critical for assets with variable or subjective values, such as shares, intellectual property, or real estate.
• Document the valuation process thoroughly, including any supporting reports or market data, to provide a solid basis in case of CRA scrutiny.

2. Matching FMV and Consideration:

• Ensure that the total FMV of the consideration (shares plus boot) aligns precisely with the FMV of the transferred property. This alignment minimizes the risk of reassessments or tax penalties.
• For example, if property valued at $400,000 is transferred, the issued shares and boot should also total $400,000 in FMV.

3. Limit the Use of Boot:

• While boot provides liquidity, it can create immediate tax liabilities if not managed carefully. To maximize tax deferral, minimize the use of boot or limit its value to the property’s adjusted cost base (ACB).
• For instance, in a transfer of shares worth $300,000 with an ACB of $200,000, limiting boot to $50,000 and allocating the remainder to shares helps defer taxes.

4. Leverage Professional Guidance:

• Collaborate with tax professionals to structure the rollover, ensuring that FMV and consideration are properly aligned and documented.
• Professional advice is particularly valuable in complex transactions, such as those involving multiple properties or intergenerational transfers.

Example Scenario:
Consider a family business owner transferring a building worth $600,000 into a holding company. A valuation report confirms the FMV of $600,000. The transferor receives $550,000 in preferred shares and $50,000 in boot. The total FMV of the consideration matches the property’s FMV, ensuring compliance and preserving the tax-deferral benefit. If the boot had exceeded $50,000, the transaction could have triggered immediate tax liabilities, reducing the effectiveness of the rollover.

Conclusion

Fair market value is a linchpin of the Section 85 rollover process, ensuring that the transaction complies with tax laws and achieves its intended tax-deferral benefits. By accurately valuing assets, aligning consideration with FMV, and minimizing boot, family-owned businesses can navigate these transactions with confidence. Avoiding pitfalls and adhering to best practices requires expertise, and at Shajani CPA, we specialize in crafting tailored strategies for Section 85 rollovers. Let us help you structure your transactions for maximum efficiency and compliance.

 

The Election Process: Filing Form T2057 and Avoiding Penalties

Filing form T2057 is a critical step in executing a Section 85 rollover, ensuring the transaction is recognized by the Canada Revenue Agency (CRA) as compliant with the Income Tax Act. Properly completing and filing this form preserves the tax-deferral benefits of the rollover while avoiding penalties and complications. This section provides a detailed step-by-step guide to filing form T2057, outlines deadlines and potential penalties, highlights common filing errors through real-life case studies, and includes essential resources for guidance.

Step-by-Step Guide to Filing the T2057 Form

Filing form T2057 requires meticulous attention to detail to avoid errors and ensure the rollover is valid. Here’s a step-by-step breakdown of the process:

Step 1: Gather Required Information

• Details of the Transferor and Transferee: Include the legal names, business numbers, and addresses of both parties.
• Description of Property Transferred: Provide a detailed description of the eligible property being transferred, including its adjusted cost base (ACB), fair market value (FMV), and any accrued capital gains.
• Agreed Amount: State the elected agreed amount, ensuring it complies with the CRA’s guidelines (between ACB and FMV).
• Consideration Received: Specify the type and FMV of consideration received, such as shares and boot.

Step 2: Allocate the Agreed Amount

• Allocate the agreed amount among the shares and any boot received. This step directly impacts the adjusted cost base (ACB) of the shares and the potential tax liability on the boot.

Step 3: Complete the Form

• Accurately complete all sections of form T2057, ensuring consistency between the values reported and supporting documentation (e.g., valuation reports).

Step 4: Attach Supporting Documentation

• Include relevant documentation, such as property appraisals, legal agreements, and financial statements, to substantiate the FMV and agreed amount.

Step 5: Obtain Signatures

• Both the transferor and transferee must sign the form, affirming their joint election under Section 85.

Step 6: Submit the Form to the CRA

• File the completed form with the CRA within the required deadline, as outlined below. Ensure you keep a copy for your records.

Deadlines, Late Filing Penalties, and Practical Tips for Timely Compliance

Filing Deadlines:
The T2057 form must be filed by the earlier of:

• The transferor’s tax return filing deadline.
• The transferee’s tax return filing deadline.

Late Filing Penalties:

• A penalty of $100 per month applies for late filings, up to a maximum of $8,000.
• Additional interest or reassessments may occur if the delay affects the tax liability calculation.

Practical Tips for Compliance:

• Mark Key Dates: Use calendar reminders or professional software to track deadlines for both the transferor and transferee.
• Prepare Early: Start gathering documentation and completing the form well before the deadline to avoid last-minute errors.
• Consult Professionals: Engage a tax professional to review the form before submission to ensure accuracy and compliance.

Real-Life Case Studies: Avoiding Common Filing Errors

Case Study 1: Missing Information
A family business owner transferred shares worth $1 million to a holding company but failed to provide an accurate FMV on the T2057 form. The CRA reassessed the transaction, resulting in delays and potential penalties. By obtaining a professional valuation report before filing, this error could have been avoided.

Case Study 2: Late Filing
A sole proprietor incorporated their business and completed the T2057 form but missed the filing deadline by three months. The CRA imposed a $300 penalty, which could have been avoided by setting reminders for key deadlines or engaging a tax advisor.

Case Study 3: Inconsistent Reporting
An entrepreneur transferred real estate under Section 85 but reported different FMVs on the T2057 form and their tax return. This inconsistency triggered a CRA review, delaying the approval of the rollover. Ensuring consistency across all documents would have prevented the issue.

Resources: Links to CRA Guidelines and Form Access

Navigating the complexities of form T2057 is made easier with access to the right resources. Below are key links for further guidance:

• CRA Guide on Section 85 Rollovers: Transfer of Property to a Corporation Under Section 85
• Archived CRA Interpretation Bulletin: IT-291R3: Transfer of Property Under Subsection 85(1)
• Form T2057: Access the T2057 Form

Conclusion

The T2057 election form is the linchpin of a successful Section 85 rollover, ensuring compliance with CRA rules and preserving the tax-deferral benefits of the transaction. By following a systematic filing process, adhering to deadlines, and avoiding common errors, you can minimize risks and streamline the rollover. At Shajani CPA, we specialize in guiding family-owned enterprises through the complexities of Section 85 elections. With our expertise, you can ensure your transactions are timely, accurate, and strategically beneficial. Reach out to us for professional assistance with your Section 85 filing needs.

 

Determining the Elected Amount: Finding the Sweet Spot

The elected amount is a critical element in structuring a Section 85 rollover. It serves as the value that both the transferor and transferee agree upon for the property transfer, directly impacting tax liability, adjusted cost base (ACB), and long-term corporate planning. Setting the elected amount correctly requires balancing several factors, including the adjusted cost base, fair market value (FMV), and the value of any boot. In this section, we’ll explore the upper and lower limits of the elected amount, the interplay between ACB, boot, and FMV, and real-world examples demonstrating optimal strategies and tax savings Shajani CPA has achieved for family businesses.

Upper and Lower Limits of the Elected Amount

The elected amount must fall within specific boundaries set by the Income Tax Act to comply with Section 85 rollover rules and ensure tax deferral.

Upper Limit:

• The elected amount cannot exceed the fair market value (FMV) of the property being transferred. Setting the amount above FMV would result in deemed proceeds of disposition, triggering a taxable capital gain.

Lower Limit:

• The elected amount cannot be less than the greater of:
  1. The adjusted cost base (ACB) of the property, which ensures that any accrued gains are deferred but not prematurely realized.
  2. The value of any boot (cash or non-share consideration) received. This ensures that the transferor pays tax on at least the portion of the property that is not rolled into shares.

The Relationship Between Adjusted Cost Base (ACB), Boot, and Fair Market Value

The elected amount plays a balancing act between the ACB, FMV, and boot to optimize tax outcomes. Understanding these relationships is critical:

Adjusted Cost Base (ACB):

• The ACB represents the original cost of the property adjusted for improvements, depreciation, or prior transactions. Setting the elected amount at or above the ACB ensures no capital loss is realized and that capital gains tax is deferred.

Boot:

• Boot refers to cash or other non-share consideration received as part of the transaction. Tax is triggered on the value of the boot, as it cannot be deferred like share consideration. Therefore, minimizing boot helps maximize tax deferral.

Fair Market Value (FMV):

• The FMV acts as the upper limit for the elected amount, ensuring the transaction reflects the property’s true value in an open market. Aligning the elected amount with FMV ensures compliance and minimizes CRA scrutiny.

Key Interplay:

• Setting the elected amount close to the ACB defers most or all capital gains tax. However, if boot is received, the elected amount must be adjusted to at least match its value to avoid triggering additional tax.

Real-World Examples of Optimal Elected Amount Strategies

At Shajani CPA, we specialize in guiding family-owned businesses through the complexities of Section 85 rollovers. Here are three examples illustrating how strategic elected amount planning saved or deferred taxes for our clients.

Example 1: Incorporating a Sole Proprietorship
A family-owned construction business decided to incorporate to access the benefits of a corporate structure. The owner transferred equipment with an ACB of $150,000 and an FMV of $300,000 to the corporation. The elected amount was set at $150,000, with no boot received.

• Result: No immediate capital gains tax was triggered, deferring $37,500 in tax (based on a 50% inclusion rate and a 50% marginal tax rate). The shares issued carried an ACB of $150,000, allowing for future flexibility in ownership changes.

Example 2: Estate Freeze for a Family Business
Parents transferring shares of their family-owned corporation to a holding company as part of an estate freeze set the elected amount equal to the shares’ ACB of $1,000,000. The FMV of the shares was $2,500,000, and preferred shares were issued as consideration. No boot was included.

• Result: The parents deferred $375,000 in potential capital gains tax, ensuring the growth of the business accrued to the next generation while maintaining control through preferred shares.

Example 3: Real Estate Transfer to a Holding Company
A family-owned corporation transferred a commercial property worth $800,000 (FMV) with an ACB of $500,000 to a holding company. The elected amount was set at $550,000, reflecting $50,000 in boot received and shares issued for the remainder.

• Result: The elected amount ensured compliance with CRA rules while deferring tax on $250,000 of the $300,000 accrued gain, saving $62,500 in taxes. The transferor paid tax only on the boot, which was a strategic decision to address short-term liquidity needs.

Conclusion

Determining the elected amount in a Section 85 rollover is a sophisticated process that requires careful consideration of the adjusted cost base, fair market value, and boot. By finding the sweet spot, family-owned businesses can achieve significant tax deferrals while positioning themselves for long-term growth and flexibility. At Shajani CPA, we leverage our expertise to craft tailored strategies for our clients, ensuring compliance, maximizing savings, and aligning transactions with broader business goals. Reach out to us for guidance on optimizing your Section 85 rollover and achieving your ambitions.

 

Adjusted Cost Base (ACB) and Paid-Up Capital (PUC): Getting It Right

The Adjusted Cost Base (ACB) and Paid-Up Capital (PUC) are pivotal components in the Section 85 rollover process. These concepts determine the tax impact of the transaction, not just at the time of the rollover but also in future corporate events such as share redemptions, sales, or reorganizations. Missteps in setting the ACB and PUC can lead to unintended tax liabilities or reduced tax efficiency. This section explores how the elected amount impacts ACB and PUC, provides a detailed walkthrough of PUC reduction calculations, and discusses strategic considerations for long-term corporate planning.

How the Elected Amount Affects ACB and PUC

The elected amount under Section 85 directly influences both the ACB of the shares received and the PUC allocated to those shares. A clear understanding of these relationships is essential for optimizing tax outcomes.

Adjusted Cost Base (ACB):

• The ACB of the shares received by the transferor is determined by allocating the elected amount between shares and boot.
• If no boot is received, the elected amount equals the ACB of the shares. For example, if the elected amount is $500,000 and no boot is included, the ACB of the shares is $500,000.
• When boot is received, the ACB of the shares is reduced by the value of the boot, as the boot is considered proceeds of disposition and may trigger a taxable gain.

Paid-Up Capital (PUC):

• The PUC represents the amount invested in the shares for tax purposes and is used to determine taxable dividends when shares are redeemed.
• Under Section 85, the PUC of the shares is generally limited to the elected amount minus any boot. However, further reductions may apply to ensure the PUC reflects the adjusted cost base of the underlying property transferred.

Key Interplay:

• A high ACB allows for greater flexibility in minimizing capital gains on future share sales.
• A low PUC reduces the tax burden on future share redemptions, as taxable deemed dividends are calculated based on the difference between redemption proceeds and PUC.

Detailed Walkthrough of PUC Reduction Calculations Under Section 85

To prevent the artificial inflation of PUC, Section 85 includes rules that may further reduce PUC. Here’s a step-by-step guide to understanding the calculation:

Step 1: Determine the Initial PUC

• Start with the elected amount as the initial basis for PUC. For example, if the elected amount is $400,000 and no boot is involved, the initial PUC is $400,000.

Step 2: Account for Boot

• Subtract the value of any boot received. If the elected amount is $400,000 and the transferor receives $50,000 in boot, the initial PUC is reduced to $350,000.

Step 3: Apply PUC Reduction Rules

• If the FMV of the property exceeds the elected amount, the PUC is further reduced by the difference between FMV and the elected amount to align the PUC with the ACB of the underlying property.
• For example, if the FMV of the transferred property is $600,000 and the elected amount is $400,000, the PUC is reduced by $200,000, resulting in a final PUC of $150,000.

Step 4: Allocate PUC Among Different Classes of Shares

• When multiple classes of shares (e.g., preferred and common) are issued, allocate the PUC based on the FMV of each class relative to the total consideration.
• For instance, if preferred shares valued at $300,000 and common shares valued at $100,000 are issued, 75% of the PUC is allocated to the preferred shares and 25% to the common shares.

Strategic Considerations for Long-Term Corporate Planning

1. Optimize ACB for Flexibility in Future Share Transactions:

• A higher ACB for shares minimizes capital gains tax on future sales or transfers. This is especially beneficial for estate planning or intergenerational transfers.
• For example, in an estate freeze, setting the ACB equal to the elected amount ensures that the value frozen for tax purposes matches the current market value.

2. Manage PUC to Minimize Taxable Dividends:

• A lower PUC reduces taxable deemed dividends on share redemptions, which are taxed at higher rates than capital gains.
• Structuring transactions to minimize PUC inflation is particularly advantageous for family-owned businesses planning future share buybacks or reorganizations.

3. Balance ACB and PUC Based on Corporate Goals:

• Align the ACB and PUC with the business’s long-term objectives, such as succession planning, shareholder equity management, or preparing for a potential sale.
• For example, issuing preferred shares with a low PUC and high ACB can facilitate dividend minimization while preserving the ability to sell or transfer shares tax-efficiently.

4. Consult a Professional for Complex Scenarios:

• Multi-asset transfers or transactions involving multiple parties require precise calculations and strategic planning to optimize ACB and PUC. Engaging a tax professional ensures compliance and maximizes benefits.

Real-Life Example: Shajani CPA’s Strategic Guidance

Scenario: A family business owner transferred shares of their operating company with an ACB of $200,000 and FMV of $500,000 to a holding company. The elected amount was set at $300,000, and the owner received $50,000 in boot, with the remaining consideration allocated to preferred shares.

Outcome:

• The PUC of the preferred shares was calculated at $250,000 ($300,000 elected amount minus $50,000 boot).
• The ACB of the preferred shares was set at $300,000, deferring tax on $200,000 of the $300,000 accrued gain.
• This structure saved the owner approximately $50,000 in immediate tax (based on a 50% inclusion rate and 50% marginal tax rate) while positioning the shares for future estate planning.

Conclusion

Getting the ACB and PUC calculations right in a Section 85 rollover is essential for achieving immediate tax deferral and long-term tax efficiency. By understanding the interplay between the elected amount, ACB, and PUC, family-owned businesses can optimize their transactions for both compliance and strategic growth. At Shajani CPA, we specialize in crafting tailored solutions that align with your corporate goals and minimize tax liabilities. Let us help you navigate the complexities of Section 85 rollovers with confidence and precision.

 

Tax Deferral Opportunities: Unlocking Value with Section 85

One of the primary advantages of a Section 85 rollover is its ability to defer taxes, making it a powerful tool for family-owned enterprises seeking efficient ways to manage capital gains and restructure their businesses. By electing an agreed amount, Section 85 facilitates the deferral of taxes on the transfer of eligible property to a corporation. This section explores how the elected amount drives tax deferral, the benefits of deferring capital gains for family enterprises, and the short-term and long-term implications of leveraging these strategies.

How the Elected Amount Facilitates Tax Deferral

The elected amount in a Section 85 rollover is the linchpin for achieving tax deferral. It allows the transferor and transferee to agree on a value for the transferred property that minimizes immediate tax liabilities while adhering to the rules set out in the Income Tax Act.

Mechanics of Tax Deferral:

• By electing an amount equal to or greater than the adjusted cost base (ACB) but not exceeding the fair market value (FMV) of the property, the transferor can defer recognition of capital gains.
• The elected amount becomes the proceeds of disposition for the transferor, ensuring no capital gain is realized if the elected amount matches the ACB.
• Deferred capital gains remain latent in the property’s adjusted cost base, shifting the tax obligation to a future event, such as a sale or redemption of shares.

Example:
A family business owner transfers shares with an ACB of $100,000 and an FMV of $300,000 to a holding corporation. By setting the elected amount at $100,000 and receiving shares as consideration, the owner defers tax on $200,000 of accrued capital gains, avoiding immediate tax liabilities.

Benefits of Deferring Capital Gains for Family-Owned Enterprises

Tax deferral provides significant benefits for family-owned businesses, particularly when planning for growth, succession, or corporate restructuring.

1. Enhanced Cash Flow:

• Deferring taxes allows businesses to retain more capital for reinvestment, operational needs, or expansion.
• Family-owned enterprises often operate with tight cash flows, making tax deferral a critical advantage for maintaining liquidity.

2. Facilitates Long-Term Planning:

• By deferring tax liabilities, businesses can focus on long-term objectives such as succession planning, estate freezes, or intergenerational wealth transfers.
• For example, a family transferring property to a holding company can defer tax on unrealized gains, preserving wealth for future generations.

3. Aligns with Growth Trajectories:

• Tax deferral ensures that gains are only taxed when realized, often at a time when the business or its assets have reached a more favorable financial position.
• This is particularly useful for growing businesses where immediate tax liabilities could stifle expansion.

4. Reduces Immediate Tax Burden:

• For family businesses, avoiding a large one-time tax bill through deferral prevents disruptions to operations or the need to liquidate assets prematurely.

Comparison of Short-Term and Long-Term Implications of Tax Deferral Strategies

Understanding the short-term and long-term implications of tax deferral allows businesses to plan more effectively and align their actions with their strategic goals.

Short-Term Implications:

• Immediate Tax Savings: By setting the elected amount close to the ACB, businesses can significantly reduce or eliminate the immediate tax payable on the transaction.
• Improved Liquidity: The funds that would otherwise be used to pay taxes remain available for reinvestment or operational purposes.
• Administrative Considerations: Proper documentation and adherence to CRA rules are required to ensure the deferral remains valid.

Example:
A sole proprietor incorporating their business transfers equipment worth $400,000 (FMV) with an ACB of $150,000. By electing $150,000, the owner defers tax on $250,000, saving approximately $62,500 in immediate taxes (based on a 50% inclusion rate and a 50% marginal tax rate).

Long-Term Implications:

• Tax Payable on Future Transactions: The deferred gains will eventually be taxed upon realization, such as when the shares are sold or redeemed. This can be managed by careful timing of future transactions.
• Potential for Lower Tax Rates: Deferring gains may allow for taxation at lower rates if future tax policy changes or if the transferor moves to a lower tax bracket.
• Increased Business Value: The deferred gains remain embedded in the corporation’s assets, potentially increasing its valuation for future transactions or growth opportunities.

Example:
A family business owner freezes their shares at an FMV of $1 million and transfers them to a holding company. The deferred gains allow the next generation to benefit from future growth, and the eventual tax liability can be managed through planned distributions or estate planning strategies.

Conclusion

Tax deferral opportunities under Section 85 provide family-owned enterprises with powerful tools to optimize their financial strategies. By strategically setting the elected amount, businesses can preserve cash flow, plan for future growth, and reduce immediate tax burdens. The short-term savings and long-term planning advantages make Section 85 rollovers an invaluable part of corporate tax strategy. At Shajani CPA, our expertise ensures that your rollover is not only compliant but also strategically tailored to unlock maximum value. Contact us to explore how we can help your family business achieve its ambitions while minimizing tax liabilities.

 

Long-Term Impacts on Future Transactions

The decisions made during a Section 85 rollover don’t just influence the immediate tax implications of a transaction—they also have far-reaching effects on the future trajectory of a business. Whether your family-owned enterprise is planning mergers, acquisitions, or intergenerational transfers, the initial choices regarding elected amounts, adjusted cost base (ACB), and paid-up capital (PUC) will shape the tax efficiency and flexibility of these future transactions. This section explores the long-term impacts of Section 85 decisions, illustrates them with real-world case studies, and provides actionable tips for aligning rollovers with broader business objectives.

How Initial Section 85 Decisions Affect Mergers, Acquisitions, and Further Transfers

1. Impact on Mergers and Acquisitions (M&A):

• The ACB and PUC established during a Section 85 rollover directly influence the tax outcomes of future M&A transactions.
• In a merger or acquisition, the ACB of the shares dictates the capital gains realized, while the PUC affects the tax treatment of distributions or redemptions.
• For example, a low PUC could lead to higher taxable deemed dividends during share redemptions in a buyout scenario, while a higher ACB minimizes capital gains tax.

2. Future Transfers and Reorganizations:

• The choices made during a Section 85 rollover can impact the ease and tax efficiency of subsequent transfers, such as moving assets between entities in a corporate group or restructuring ownership.
• A well-structured initial rollover ensures that future transactions remain aligned with strategic goals, such as succession planning or preparing the business for sale.

3. Preservation of Tax Attributes:

• Section 85 decisions can preserve important tax attributes, such as unused losses or capital gains exemptions, which may be leveraged in future transactions.
• For instance, by setting the elected amount to minimize immediate tax liabilities, businesses retain flexibility to utilize these attributes when most advantageous.

Case Studies: Strategic Planning for Future Corporate Growth and Succession

Case Study 1: Preparing for a Sale
A family-owned manufacturing company completed a Section 85 rollover to transfer assets into a holding company in anticipation of a sale. By setting the elected amount equal to the ACB of $1 million, the owners deferred tax on $2 million in accrued gains. When the business was sold five years later for $5 million, the deferred tax liability was realized at a more favorable time, as corporate growth had significantly increased the value of the remaining assets.
Outcome: By deferring tax at the time of the rollover, the family preserved $500,000 in immediate cash flow (based on a 50% inclusion rate and 50% tax rate), which they reinvested into business operations, driving higher valuation at sale.

Case Study 2: Intergenerational Succession Planning
A family transferred shares of their operating company to a holding company as part of an estate freeze. The elected amount was set at $2 million, matching the ACB of the shares, while the FMV was $5 million. The freeze allowed future growth to accrue to common shares issued to the next generation, minimizing immediate tax liability while preserving the business for family succession.
Outcome: The transaction deferred $750,000 in tax on accrued gains and allowed the next generation to assume ownership of a growing business, creating a seamless transition without liquidity pressures.

Case Study 3: Mergers and Expansions
A technology startup completed a Section 85 rollover to transfer intellectual property (IP) into a new corporation. By carefully setting the elected amount at the ACB of $100,000, the company deferred tax on the IP’s FMV of $1 million. When the company merged with a larger entity three years later, the deferred gains were taxed, but the initial deferral allowed the company to secure venture capital and expand significantly before the merger.
Outcome: The strategic use of Section 85 enabled the startup to avoid a $225,000 tax liability (at a 50% marginal rate) during its early growth phase, ensuring more resources were available for scaling operations.

Tips for Aligning Section 85 Rollovers with Broader Business Goals

1. Tailor the Elected Amount to Future Plans:

• Choose an elected amount that aligns with anticipated future transactions, such as sales, reorganizations, or transfers. For instance, a lower elected amount might be optimal for deferring gains if a future sale or freeze is likely.

2. Prioritize Flexibility in Corporate Structures:

• Ensure that the structure created through the rollover supports flexibility for future growth, partnerships, or generational transitions. Using holding companies or multiple share classes can provide this flexibility.

3. Preserve Capital Gains Exemptions:

• If planning a future sale, consider the lifetime capital gains exemption (LCGE). Structuring a Section 85 rollover to defer gains and preserve access to the LCGE can significantly reduce tax on a future sale of qualified small business corporation shares.

4. Integrate Rollover Planning with Long-Term Objectives:

• Work with a tax professional to align rollover strategies with long-term goals, such as wealth preservation, retirement, or scaling the business. This holistic approach ensures the rollover is not just tax-efficient but also strategically aligned with the enterprise’s ambitions.

5. Regularly Reassess and Update Plans:

• As business goals evolve, revisit and adjust corporate structures created during a Section 85 rollover. Future changes in tax laws or family dynamics may require updates to maintain optimal outcomes.

Conclusion

The initial decisions made in a Section 85 rollover set the stage for a family-owned enterprise’s future success. Whether preparing for mergers, acquisitions, or succession, structuring the elected amount, ACB, and PUC correctly ensures long-term tax efficiency and strategic alignment. At Shajani CPA, we specialize in guiding businesses through these critical choices, creating tailored solutions that unlock opportunities and protect your vision for the future. Contact us to explore how a Section 85 rollover can be the foundation for your long-term business success.

 

Compliance and Reporting: Staying Ahead of the Curve

Executing a Section 85 rollover is only the first step in leveraging this powerful tax deferral tool. To maintain its validity and avoid potential penalties or reassessments by the Canada Revenue Agency (CRA), ongoing compliance and meticulous documentation are critical. This section examines the ongoing requirements for maintaining rollover validity, underscores the importance of adhering to CRA rules, and highlights how professional expertise can ensure seamless compliance.

Ongoing Requirements for Maintaining Rollover Validity

After a Section 85 rollover is completed, ongoing compliance measures are essential to uphold the transaction’s tax-deferral benefits and ensure the election remains valid in the eyes of the CRA.

1. Accurate Tracking of Adjusted Cost Base (ACB):

• Maintain detailed records of the ACB for all transferred property and the shares received in consideration.
• Regular updates are necessary if future transactions, such as share transfers or redemptions, impact the ACB.

2. Monitoring Paid-Up Capital (PUC):

• Track the PUC of shares issued in the rollover, as it influences future dividend taxation and corporate reorganizations.
• Ensure that the PUC aligns with the CRA’s rules and any adjustments made during the initial transaction.

3. Consistency in Tax Returns:

• Ensure that the details of the rollover, including the elected amount, are consistently reported across tax returns for both the transferor and transferee.
• Any discrepancies between tax filings can trigger a CRA review or reassessment.

4. Adherence to Specific Conditions:

• Comply with any conditions attached to the rollover, such as the proper treatment of boot or continued ownership of shares.
• For example, selling shares prematurely or using boot for non-business purposes may jeopardize the tax-deferral benefits.

Importance of Documentation and Adherence to CRA Rules

Proper documentation and adherence to CRA rules are non-negotiable when it comes to Section 85 rollovers. Failure to maintain compliance can result in penalties, the disallowance of the election, or the realization of deferred gains.

1. Comprehensive Documentation:

• Maintain detailed records of the property transferred, including descriptions, valuations, and supporting documents such as appraisals.
• Retain copies of Form T2057 and any related correspondence with the CRA.

2. Valuation Accuracy:

• Accurate valuations are crucial for determining the fair market value (FMV) of the transferred property and the shares issued in consideration.
• Engage qualified professionals to ensure that valuations meet CRA standards, minimizing the risk of reassessment.

3. Filing and Reporting Requirements:

• Submit Form T2057 within the required deadlines and ensure that all relevant details are accurately recorded.
• If amendments to the election are required, follow the CRA’s guidelines for filing revised forms or supplementary documents.

4. Adherence to CRA Policies:

• Stay informed about changes in CRA policies or interpretations of Section 85 to ensure ongoing compliance.
• For example, new reporting requirements or changes to valuation rules may necessitate updates to documentation or processes.

Leveraging Professional Expertise for Seamless Compliance

Navigating the complexities of Section 85 rollovers and their compliance requirements can be challenging. Engaging professional expertise ensures that all aspects of the transaction are handled with precision and adherence to CRA guidelines.

1. Expertise in Tax Law and Accounting:

• Professionals with a deep understanding of tax law, such as those at Shajani CPA, can identify potential pitfalls and develop tailored strategies to maintain compliance.
• Their expertise ensures that elected amounts, valuations, and reporting align with CRA expectations.

2. Ongoing Monitoring and Support:

• Professionals can assist with regular reviews of ACB, PUC, and other tax attributes to ensure continued compliance and optimal tax outcomes.
• They can also provide guidance on how changes in business operations or ownership structures may impact the initial rollover.

3. Proactive CRA Audit Preparation:

• In the event of a CRA review or audit, having well-organized records and professional support can expedite the process and minimize disruption.
• Professionals can represent clients during audits, ensuring accurate communication and resolution.

Example:
A family-owned business engaged Shajani CPA to assist with a Section 85 rollover involving real estate. The team ensured that all valuations were documented, Form T2057 was filed on time, and compliance was maintained through subsequent transactions. When the CRA audited the transaction three years later, the documentation and professional representation provided by Shajani CPA resulted in a seamless audit process with no reassessments or penalties.

Conclusion

Maintaining compliance after a Section 85 rollover is essential to preserving the tax-deferral benefits and avoiding potential CRA penalties. By adhering to ongoing requirements, documenting transactions meticulously, and leveraging professional expertise, family-owned enterprises can navigate the complexities of compliance with confidence. At Shajani CPA, we specialize in guiding businesses through the intricacies of tax reorganizations, ensuring your transactions remain valid and strategically beneficial. Contact us to ensure your Section 85 rollover continues to unlock value for your business.

 

Why Shajani CPA is Your Trusted Partner

At Shajani CPA, we understand the unique complexities of Section 85 rollovers and the significant opportunities they present for family-owned enterprises. With a combination of extensive expertise in accounting and tax law, a personalized approach to every client’s needs, and a proven track record of success, we stand as the trusted partner for businesses navigating these intricate transactions.

Highlighting Shajani CPA’s Combined Expertise in Accounting and Tax Law

Shajani CPA is uniquely positioned to deliver unparalleled expertise in Section 85 rollovers thanks to our dual focus on accounting and tax law. Our team brings together professionals with designations such as CPA, CA, LL.M (Tax), and TEP, ensuring that our advice is grounded in a deep understanding of both financial and legal considerations.

Key Advantages of Our Expertise:

• Comprehensive Knowledge: We understand not only the technical requirements of Section 85 but also the broader implications for corporate tax strategy, financial planning, and compliance.
• Strategic Insight: Our ability to interpret complex tax regulations and integrate them with accounting principles enables us to craft solutions that optimize both short-term and long-term outcomes.
• Tailored Solutions: Every client’s situation is unique. We apply our knowledge to design strategies that align with your specific goals and ambitions.

Personalized Approach to Optimizing Section 85 Rollovers for Family-Owned Enterprises

We take a personalized approach to every client engagement, recognizing that family-owned enterprises often have goals that extend beyond financial efficiency to include succession planning, wealth preservation, and intergenerational equity.

How We Customize Our Approach:

• Understanding Your Goals: From tax savings to corporate growth and succession planning, we work closely with you to identify and prioritize your objectives.
• Strategic Planning: We analyze your corporate structure, financial position, and property portfolio to identify the best opportunities for tax deferral and optimization.
• Hands-On Support: From preparing valuations and filing Form T2057 to guiding you through compliance and documentation, we manage every detail to ensure a seamless experience.

Testimonials or Case Studies Showcasing Successful Rollovers

Our clients’ successes speak volumes about the value we deliver. Here are examples of how Shajani CPA has guided family-owned businesses through successful Section 85 rollovers:

Case Study 1: Estate Freeze and Tax Deferral
A family-owned business engaged Shajani CPA to transfer shares worth $2 million to a holding company as part of an estate freeze. By setting the elected amount equal to the adjusted cost base, we deferred $500,000 in immediate taxes. The family was able to preserve the business for future generations while minimizing the tax burden.

Case Study 2: Business Incorporation and Growth
A sole proprietor transferring $1 million in assets to a newly incorporated business benefited from Shajani CPA’s strategic guidance. We structured the rollover to defer $250,000 in taxes, enabling the owner to reinvest the savings into expanding operations.

Case Study 3: Real Estate Reorganization
Shajani CPA assisted a family-owned corporation in transferring $5 million worth of commercial property into a holding company. By carefully setting the elected amount and ensuring compliance, we deferred over $1 million in taxes, positioning the business for a future sale with minimal tax implications.

 

Conclusion: Strategic Success with Section 85 Rollovers

Section 85 rollovers are more than just a tax tool—they’re a strategic asset for family-owned enterprises looking to preserve wealth, facilitate growth, and plan for the future. By allowing businesses to defer taxes on eligible property transfers, Section 85 provides opportunities for cash flow optimization, succession planning, and long-term flexibility.

Key Benefits of Section 85 Rollovers:

• Immediate tax deferral, preserving cash flow for reinvestment or operational needs.
• Strategic alignment with corporate goals such as growth, succession, or restructuring.
• Compliance with CRA rules to avoid penalties or reassessments.

Shajani CPA brings unmatched expertise, personalized service, and a proven track record to the table, ensuring that your Section 85 rollover is not just compliant but also strategically beneficial. With a deep understanding of the needs of family-owned enterprises, we provide tailored guidance that supports your ambitions and unlocks the full potential of tax-efficient corporate asset transfers.

Call to Action: Contact Shajani CPA today to learn how we can help you navigate the complexities of Section 85 rollovers, preserve wealth, and achieve your long-term business goals. Together, we’ll transform challenges into opportunities and guide you toward a future of financial success.

 

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.

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