A Section 85 rollover is a provision of the Income Tax Act that allows eligible property to be transferred to a corporation on a tax-deferred basis, deferring the capital gain that would otherwise arise on the transfer.

Without Section 85, transferring an appreciated asset, shares, real estate, or business assets, to a corporation would be a deemed disposition at fair market value, triggering immediate capital gains tax. Section 85 allows the transferor to elect a transfer price between the asset’s tax cost and its fair market value, deferring the gain until the shares received are eventually disposed of.

The mechanics require a joint election filed by both the transferor and the corporation, and the elected amount must fall within specific limits depending on the asset type. Section 85 is the primary tool used in business incorporations, corporate reorganizations, and pre-sale restructuring, including transferring assets into a HoldCo or restructuring share classes before an exit. Getting the elected amount wrong, or missing the filing deadline, can result in an immediate and unintended taxable event.

A Section 85 rollover requires precision. The wrong elected amount triggers a taxable event that cannot be reversed. See how Wefinx approaches tax planning.

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