When you incorporate your business, moving assets like equipment, inventory, or goodwill into a corporation can create an unexpected tax bill. That’s because the Canada Revenue Agency (CRA) normally treats the transfer as if you sold the assets at fair market value.

A Section 85 rollover is a solution. It allows you to transfer eligible property into a Canadian corporation on a tax-deferred basis. Instead of paying capital gains tax immediately, the liability is deferred until the corporation sells the property in the future.

How It Works

1. Identify eligible property- examples include equipment, inventory, real estate, and goodwill.
2. Choose an elected amount- usually between the property’s original cost and its fair market value.
3. Receive shares in exchange- you must receive at least one share of the corporation.
4. File CRA Form T2057- the transferor and corporation must file this election.

Example

You bought equipment for $50,000 that’s now worth $80,000.

• Without rollover: you trigger a $30,000 gain immediately.
• With rollover: you transfer at $50,000, defer the gain, and avoid tax until the corporation sells the asset.

Benefits

• Defers tax on incorporation or restructuring
• Provides flexibility in tax planning
• Preserves cash flow for business growth

Risks

• Late or incorrect filings can trigger penalties
• Improper valuations may be challenged by CRA
• Receiving too much non-share consideration can create unexpected tax

Final Thoughts

A Section 85 rollover can help you incorporate or restructure without an immediate tax hit, but it’s a technical process. Work with a tax professional to ensure your rollover is filed correctly and delivers the intended benefits.

If you have questions or need support with your corporation, our corporate team at Sitka Law Group is here to help. Contact us today to schedule a consultation. We’re conveniently located on Shelbourne Street, near the intersection of Victoria, Oak Bay, and Saanich.

Check out our other corporate business law blogs here.

This article is current as of September 26, 2025, and it is intended for general information purposes only. It is not intended to provide legal advice and should not be considered legal advice. Readers with concerns about how this affects particular situations or transactions should obtain the independent review and advice of legal counsel.