What is section 85 and why is it used?
Tax practitioners commonly refer to Section 85 as a rollover. This rollover allows a sole proprietorship to transfer assets to a corporation without resulting in a capital gain. A capital gain is a profit made from the sale of an asset.
When a sole proprietor decides to incorporate their business, the CRA (Canada Revenue Agency) dictates that the assets are to be sold at fair market value (FMV). To benefit from this rollover, sole proprietors may sell their business assets at their initial purchase price, instead of current market value. This transfer must include some shares as part of consideration received on the sale.