What is a Section 85 election?
A Section 85 Rollover is a special election filed with the CRA after incorporating a sole proprietorship. It allows sole proprietors to transfer assets of the sole proprietorship into the newly incorporated business on a tax-deferred basis.
What is the purpose of a Section 85 rollover?
The section 85 rollover is an election in the Canadian Income Tax Act that permits a taxpayer to transfer eligible property on a tax deferred basis to a taxable Canadian corporation.
When can I use Section 85 rollover?
The Section 85 rollover is prepared through CRA’s T2057 form. In other words, electing to use the Section 85 rollover mechanism allows for assets to be transferred to a Canadian Corporation without triggering tax.
What is the boot section 85 rollover?
Boot is the term commonly used to describe any non-share consideration that a transferor receives from a transferee corporation in a rollover of property to the transferee corporation under section 85 of the Income Tax Act.
Can shares be transferred under section 85?
Shares of the Transferor In certain circumstances it may be desirable to transfer shares of a corporation to the corporation under subsection 85(1). For example, this technique may be used to crystallize a capital gains exemption without having to incorporate a new corporation.
Can non resident use Section 85 rollover?
In the context of a section 85 rollover, non-residents may transfer capital property (excluding certain types of real property), certain types of inventory, Canadian and foreign resource property, and certain security or debt obligations.
What is the Revenue Canada position on Section 85 elections?
Where applicable, Revenue Canada has extended its position on section 85 elections to elections under subsection 93 (1), Election re disposition of share in foreign affiliate, subsection 97 (2), Rules where election by partners, and subsection 98 (3), Rules applicable where partnership ceases to exist.
What is an election under Section 85 of the Companies Act?
The election therefore allows the parties to manage (and typically eliminate) the income that would otherwise arise on transfers to corporations. The key considerations in determining whether an election under section 85 is available are outlined below.
What do you need to know about Section 85 consideration?
CONSIDERATION RECEIVED 8. Under section 85, the consideration that the transferor receives for the property transferred to the corporation has to include at least one share (or fraction of a share) of the capital stock of that corporation for the election to be valid. 9. Form T2057 applies to elections made under subsection 85 (1).
How do I prepare for a section 85 election?
The preparation of a successful Section 85 Election requires expert timing, execution and coordination of key sequential steps between: You (the investor) Your trusted investment professional/financial institution. The acquiring company. Your tax accountant.