Section 85 Rollover Accountant: Why Expert Guidance Matters for Tax-Deferred Transfers

When business owners restructure, incorporate, or transfer assets to a corporation, tax consequences can quickly become complex. One of the most valuable provisions available under Canadian tax law is the Section 85 rollover, which allows assets to be transferred to a corporation on a tax-deferred basis. However, this strategy must be executed carefully to avoid unintended tax liabilities. Working with an experienced Section 85 rollover accountant, such as Madan CPA, a Corporate Tax Expert, can help ensure the transaction is structured correctly and aligned with your long-term business goals.

What Is a Section 85 Rollover?

Section 85 of the Income Tax Act allows individuals, partnerships, or corporations to transfer eligible property to a taxable Canadian corporation without immediately triggering capital gains or recapture of depreciation.

Normally, when you transfer assets at fair market value (FMV), any increase in value becomes taxable. A Section 85 rollover allows you to elect a transfer value (called the elected amount) between the asset’s tax cost and its FMV. This defers the tax until the asset or shares are eventually sold.

This provision is commonly used when:

• Incorporating a sole proprietorship or partnership
• Moving personal assets into a corporation
• Reorganizing a corporate structure
• Transferring business assets to a holding company

Because the election involves strict filing requirements and valuation considerations, professional guidance is essential.

Eligible Property for a Section 85 Transfer

Not all assets qualify for a Section 85 rollover. Eligible property generally includes:

• Business equipment and machinery
• Inventory
• Real estate used in business
• Goodwill and intangible assets
• Shares of a corporation
• Certain partnership interests

The asset must be transferred to a taxable Canadian corporation, and the transferor must receive at least some form of consideration, typically corporate shares.

A Section 85 rollover accountant helps determine eligibility, calculate adjusted cost bases, and structure the consideration appropriately to avoid triggering taxable gains.

How the Section 85 Election Works

The key to a successful rollover is filing Form T2057, which must be jointly completed by both the transferor and the corporation. The form specifies:

• Description of transferred assets
• Fair market value
• Adjusted cost base or undepreciated capital cost
• The elected transfer amount
• Consideration received (shares, cash, or other assets)

The elected amount becomes:

• The corporation’s tax cost of the asset
• The transferor’s proceeds of disposition

If the elected amount is set incorrectly, it may trigger immediate tax or create future tax complications. This is where a Corporate Tax Expert like Madan CPA plays a critical role in structuring the election properly.

When You Need a Section 85 Rollover Accountant

While Section 85 offers significant tax advantages, the rules are technical and unforgiving. Professional support is especially important in the following situations:

1. Incorporating Your Business

When moving a sole proprietorship into a corporation, multiple assets—inventory, equipment, receivables, and goodwill – must be transferred correctly. Errors can lead to unexpected tax bills.

2. Estate or Succession Planning

Section 85 rollovers are often used to freeze the value of a business and transfer future growth to family members. Proper structuring ensures both tax efficiency and compliance.

3. Corporate Reorganizations

Whether you’re creating a holding company, separating business lines, or restructuring for liability protection, a rollover must be carefully planned to avoid triggering gains.

4. High-Value Assets or Real Estate

Transfers involving appreciated real estate or valuable business assets require accurate valuation and strategic election planning.

Madan CPA, as a Corporate Tax Expert, helps clients analyze these scenarios and implement tax-efficient rollover strategies tailored to their business objectives.

Common Mistakes to Avoid

Many business owners attempt informal asset transfers without realizing the tax implications. Some common errors include:

• Missing the T2057 filing deadline
• Using incorrect fair market values
• Electing an amount outside the permitted range
• Receiving too much non-share consideration (boot)
• Failing to document the transfer properly

If the election is filed late, penalties may apply, and in some cases, the rollover may be denied altogether. A qualified Section 85 rollover accountant ensures all documentation, valuations, and elections are completed accurately and on time.

Tax Planning Opportunities with Section 85

When structured correctly, a Section 85 rollover can support broader tax planning strategies, such as:

• Deferring capital gains to a future year
• Accessing the Lifetime Capital Gains Exemption later
• Creating a holding company structure for income splitting or asset protection
• Improving financing or investor readiness
• Facilitating business succession or sale planning

Madan CPA works closely with business owners to integrate Section 85 planning into their overall corporate tax strategy rather than treating it as a standalone transaction.

Documentation and Valuation Requirements

The Canada Revenue Agency (CRA) expects proper support for all Section 85 elections. This may include:

• Independent asset valuations (for real estate or significant assets)
• Share issuance documentation
• Corporate resolutions
• Updated shareholder registers
• Transfer agreements

Without proper records, the CRA may challenge the elected amounts. An experienced accountant ensures the transaction is fully documented and defensible.

Why Work with Madan CPA?

Section 85 rollovers combine technical tax rules, valuation considerations, and corporate law elements. Madan CPA brings specialized corporate tax expertise to help clients:

• Evaluate whether a rollover is appropriate
• Structure transfers for maximum tax efficiency
• Prepare and file Form T2057 accurately
• Coordinate with legal advisors when required
• Align the rollover with long-term business and succession plans

With the right guidance, business owners can avoid costly mistakes and take full advantage of available tax deferral opportunities.

Final Thoughts

A Section 85 rollover is one of the most powerful tax planning tools available to Canadian business owners. Whether you’re incorporating, restructuring, or planning for the future, the benefits can be significant—but only if the election is handled correctly.

Working with a knowledgeable Section 85 rollover accountant ensures your transfer is compliant, tax-efficient, and strategically aligned with your business goals. If you’re considering a corporate restructuring or asset transfer, consulting a Corporate Tax Expert like Madan CPA can help you move forward with confidence and avoid unexpected tax surprises.