Yes, you can transfer business assets to your corporation on a tax-deferred basis using a section 85 rollover under the Income Tax Act. This allows you to move eligible assets (like equipment, inventory, or goodwill) into your corporation at their fair market value without triggering immediate capital gains tax. Instead, you receive shares in the corporation equal to the asset value, deferring the tax until you eventually sell the shares. However, this strategy requires careful planning, CRA compliance, and proper documentation to qualify. A section 85 rollover is a tax deferral mechanism that lets Canadian business owners transfer property to their corporation without an immediate tax bill. Rather than selling your assets at fair market value (which would trigger capital gains tax), you can elect under section 85 of the Income Tax Act to transfer them at a chosen value between your adjusted cost base and fair market value.
No immediate tax is due if the election is filed correctly. However, the capital gain is deferred, not eliminated. You'll owe tax when you eventually sell the shares or the corporation is wound up. The ACB of the transferred assets carries forward into the corporation.
If Form T2057 is not filed with your tax return, the CRA may reject the election, and you could face unexpected capital gains tax on the transfer. Late filings may be denied unless you obtain permission from the CRA. Always file on or before your filing deadline.
Yes, accounts receivable can qualify for a section 85 rollover. However, you cannot transfer them at full face value; you must use a reasonable reserve for uncollectible amounts. The difference between the face value and the reserved amount is treated as a capital loss.
A section 85 rollover defers tax on the transfer of assets to a corporation. A deemed disposition (which happens if you don't file Form T2057 correctly) treats the transfer as an immediate sale at fair market value, triggering immediate capital gains tax. Always file the proper election to avoid a deemed disposition.
Yes, goodwill is eligible for a section 85 rollover. However, goodwill must be properly valued, usually with a professional appraisal. The CRA scrutinizes goodwill valuations closely, so be prepared to justify the amount with supporting documentation.