MONTREAL CPA FIRM NEAR YOU: SECTION 85 ROLLOVER – TRANSFERRING ASSETS TO A CORPORATION

Introduction to Section 85 Rollover
Section 85 of the Income Tax Act allows Montreal business owners to transfer eligible property to a corporation on a tax-deferred basis. This rollover mechanism is crucial for entrepreneurs who wish to incorporate their business without triggering immediate capital gains or recapture taxes. By deferring taxes, business owners can preserve capital, reinvest in operations, and optimize long-term financial planning. Montreal CPAs provide guidance on the rules, requirements, and strategic applications of Section 85 to ensure compliance with CRA and Revenu Québec regulations while maximizing tax benefits. Section 85 also plays a pivotal role in estate planning, business succession, and asset protection strategies, allowing smooth transitions of business ownership.

Eligible Properties for Section 85
Eligible properties include capital property, eligible capital property, inventory, and certain shares. Montreal business owners must carefully assess which assets qualify for rollover treatment, as improper classification can lead to immediate taxation. CPAs guide the identification and valuation of assets, ensuring Montreal entrepreneurs meet eligibility criteria while preserving tax-deferral benefits. Additional considerations include intercompany transactions, related-party transfers, and the impact on future corporate structure. Proper planning ensures assets are transferred efficiently, minimizing administrative burden and tax exposure.

Agreed-upon Consideration and Election
The Section 85 election requires determining the consideration for the transferred assets, including shares issued by the corporation. Montreal CPAs assist in negotiating the fair market value, documenting agreements, and filing necessary forms with CRA. The election allows the transferor to choose the amount to be recognized as proceeds of disposition, balancing immediate tax implications and future gains. Proper election planning also accounts for potential adjustments in asset value, shareholder agreements, and anticipated corporate growth.

Tax-Deferred Benefits of Section 85
By using Section 85, Montreal business owners can defer taxes on capital gains or recapture until a later disposition of the transferred assets. This deferral enhances cash flow, enabling reinvestment and business expansion. CPAs model various scenarios to optimize the timing and structure of asset transfers, considering future corporate income, shareholder distribution strategies, and potential capital gains exposure. Deferring taxes also allows flexibility in managing corporate and personal finances, contributing to long-term financial stability.

Integration with Corporate Structure
Section 85 rollovers integrate seamlessly with incorporation strategies, holding companies, and family-owned businesses. Montreal CPAs advise on structuring corporate entities to optimize asset transfers, shareholder control, and tax planning. Proper integration ensures that the rollover aligns with both business objectives and succession plans, reducing potential disputes and preserving wealth. Effective planning can also enable future intercorporate transfers without immediate tax consequences.

Documentation Requirements
Accurate and complete documentation is essential for Section 85 transactions. Montreal business owners must maintain records of asset valuations, agreements, and election forms filed with CRA. CPAs provide templates, review processes, and compliance checks to ensure all supporting documentation meets regulatory standards. Proper documentation minimizes audit risk, substantiates asset transfers, and enables smooth integration into corporate accounting systems.

Valuation Considerations
Asset valuation is critical in Section 85 rollovers. Montreal CPAs work with independent appraisers or use internal valuation methods to determine fair market value. Accurate valuations impact the proceeds of disposition, allowable tax deferral, and future capital gains. Misevaluation can result in unexpected tax liabilities or audit scrutiny, emphasizing the importance of professional guidance. CPAs also consider depreciation, market trends, and asset condition when valuing property for rollover purposes.

Strategic Timing of Transfers
Timing asset transfers is essential for optimizing tax outcomes. Montreal CPAs evaluate fiscal year considerations, projected income, and market conditions to determine the ideal date for the Section 85 election. Proper timing ensures maximum tax deferral, aligns with corporate cash flow needs, and supports long-term business planning. Timing strategies also consider anticipated corporate growth, shareholder changes, and potential regulatory updates that could impact rollover benefits.

Impact on Shareholders
Shareholders receiving shares in exchange for transferred assets must understand the tax implications, future capital gains potential, and impact on corporate control. Montreal CPAs provide detailed guidance on shareholder agreements, tax deferral benefits, and potential liabilities. Ensuring that all parties are informed and aligned minimizes disputes, promotes strategic planning, and safeguards both corporate and personal wealth.

Recapture and Future Dispositions
Section 85 deferral postpones taxes, but recapture or capital gains may arise upon future asset disposition. Montreal CPAs model potential tax scenarios, preparing clients for eventual recognition of income or gains. Strategic planning includes assessing the optimal time for disposal, leveraging available deductions, and structuring sales to minimize overall tax impact. Proper foresight ensures that deferred taxes do not create unexpected financial burdens.

Estate Planning Applications
Section 85 rollovers are frequently used in estate planning. Montreal CPAs guide families in transferring business assets to new generations or holding companies while minimizing immediate tax exposure. The rollover facilitates smooth succession, preserves wealth, and provides flexibility for future corporate restructuring. Proper planning ensures that assets are transferred efficiently without compromising control or financial stability.

Integration with Other Tax Strategies
Section 85 works in conjunction with other tax strategies, including tax-loss carryforwards, dividend planning, and shareholder loans. Montreal CPAs create comprehensive tax plans that incorporate multiple tools to maximize benefits. Integrating strategies reduces overall tax liability, improves cash flow, and supports long-term corporate objectives. Strategic combination ensures businesses leverage all available avenues for tax optimization.

Audit Considerations
Improper use of Section 85 can trigger CRA audits. Montreal CPAs prepare clients with proper documentation, accurate valuations, and compliant elections to reduce risk. Maintaining transparency, adherence to regulations, and accurate reporting ensures smooth audit experiences. Businesses benefit from professional oversight that mitigates risk while protecting deferred tax benefits.

Corporate Governance Implications
Transferring assets under Section 85 affects corporate governance, including shareholder rights, voting control, and board oversight. Montreal CPAs advise on structuring transactions to maintain effective governance while achieving tax efficiency. Aligning rollover transactions with corporate bylaws ensures compliance, smooth operations, and protection of stakeholder interests.

Financial Statement Impact
Section 85 rollovers affect financial statements, including asset valuations, equity accounts, and deferred taxes. Montreal CPAs assist in reflecting these transactions accurately, providing clarity for investors, lenders, and regulatory authorities. Proper accounting ensures transparency, supports financing activities, and aligns reported figures with tax positions.

Cash Flow Considerations
Deferring taxes through Section 85 preserves cash for business operations, expansion, and reinvestment. Montreal CPAs analyze cash flow implications, projecting savings and identifying optimal use of deferred funds. Strategic use of cash flow supports operational growth while maintaining financial stability.

Complex Asset Transfers
Transferring multiple asset types or related-party holdings increases complexity. Montreal CPAs provide detailed planning, scenario modeling, and compliance guidance to ensure each asset is properly treated. This prevents unintentional tax triggers, preserves deferral benefits, and ensures accurate corporate records.

Intercorporate Transactions
Section 85 can be used for intercorporate transfers, supporting holding company structures or reorganizations. Montreal CPAs advise on legal and tax implications, ensuring compliance while maximizing tax deferral opportunities. Proper structuring supports corporate strategy, succession planning, and long-term asset management.

Why Choose Mackisen
Mackisen offers Montreal business owners expert guidance on Section 85 rollovers, ensuring accurate reporting, optimized tax deferrals, and integration with broader corporate strategy. Our CPA team helps entrepreneurs navigate complex rules, maintain compliance, and leverage deferral opportunities to preserve wealth, support growth, and achieve long-term financial goals. Choosing Mackisen ensures professional, reliable, and strategic support for all corporate asset transfers.