CORPORATE ROLLOVER

Business Purchase  -  Business Sale  -  Equipment  -  Buy-Out  -  Leasing  -  Financing  -  Amalgamation  -  Expanding into Canada

Contact Neufeld Legal PC at 403-400-4092 or Chris@NeufeldLegal.com

When seeking to optimize your business operations and tax efficiency, it often proves advantageous to transfer assets or shares to an alternate business entity. Whereas such a business entity could prove more efficient from a tax and/or operational perspective, there is the concern that making such a transfer could result in adverse tax consequences. Fortunately, the Income Tax Act (Canada) provides for appropriate relief an immediate taxable event, through the availability of a corporate rollover. When undertaken in accordance with the Income Tax Act (Canada), rollovers allow for the deferral of the tax until its disposition to a third party.

Share-for-Share Exchange [section 85 and section 85.1 of the Income Tax Act] - A section 85 rollover enables a taxpayer to elect to transfer “eligible property” to a taxable Canadian corporation in exchange for consideration that includes at least one share of the corporation. “Eligible property” includes most capital property, Canadian or foreign resource property, eligible capital property and inventory, other than inventory that is real property. Where the taxpayer and the corporation agree upon an amount that does not exceed the fair market value (FMV) of the exchanged property disposed of and is not less than the FMV of any non-share consideration that is received, the amount agreed upon becomes, subject to certain specific limitations, the taxpayer's proceeds of disposition and the corporation's cost of the exchanged property. By choosing an appropriate amount within those limits the exchanged property can be transferred on a tax-deferred basis, whereby the corporation assumes the taxpayer's potential income tax liabilities for the exchanged property.

Meanwhile, a section 85.1 rollover is designed to provide a tax-free rollover to a taxpayer who held shares in an acquired corporation and as a result of the takeover or attempted takeover, the taxpayer exchanged those shares for shares in the corporation that purchased the acquired corporation. In order for the rollover to apply, the taxpayer must have held the shares in the acquired corporation as capital property and the consideration received for these shares must be newly issued shares of the purchasing corporation. The cost to the purchaser of each of the shares of the acquired corporation is generally the lesser of FMV of the share and its paid-up capital (PUC).

Exchange of Shares by a Shareholder in course of Reorganization of Capital [section 86 of the Income Tax Act] - A section 86 share exchange facilitates a tax-free rollover in the situation where, under a reorganization of the capital structure of a company, a taxpayer disposes of all the shares of any particular class of the capital stock of the company in consideration for which property is receivable by the taxpayer from the corporation that includes other shares of the capital stock of the company.

Share Conversion [section 51(1) of the Income Tax Act] - A section 51(1) exchange permits a taxpayer to exchange a convertible property issued by a corporation for shares of the corporation on the basis of a tax-free rollover. Convertible properties are capital property such as a share, bond, debenture or note of the corporation that contains a conversion privilege. In the course of an exchange of convertible property, a taxpayer may be entitled to receive a fractional interest in a share.

For knowledgeable and experienced legal representation when undertaking a corporate rollover or other tax-driven corporate re-structuring, contact corporate business lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.

When can I use a section 85 Rollover? What are the Benefits? A section 85 rollover is a provision in the Canadian Income Tax Act that allows individuals, partnerships, trusts, or corporations to transfer "eligible property" to a taxable Canadian corporation on a tax-deferred basis. This means that you can transfer assets that have appreciated in value without immediately triggering a capital gain and the associated tax liability. Read more.

 

Why use a Rollover when Incorporating a Sole Proprietorship When incorporating a sole proprietorship in Canada, using a Section 85 Rollover is a crucial tax planning tool that offers significant benefits, primarily tax deferral. Yet to understand the rationale for utilizing a Section 85 Rollover, it is worthwhile to consider the ramifications of incorporating a sole proprietorship without undertaking a Section 85 Rollover. Read more.

 

Can I Rollover My Cryptocurrency Account into a Corporation? Yes, in Canada, you can generally "rollover" your cryptocurrency into a corporation, and it can offer significant tax advantages, particularly if your crypto activities are considered a business rather than just an investment. This is typically done using a Section 85 rollover under the Income Tax Act (Canada). Read more.

 

What are the tax advantages of a section 51(1) Share Conversion? A section 51(1) share conversion allows for a tax-deferred "rollover" when a taxpayer exchanges a "convertible property" (which can be another share of the corporation, or a bond, debenture, or note of the corporation with a conversion privilege) for shares of the same corporation, provided no other consideration is received. Read more.

 

Why Crystallize Capital Gains? What are the benefits? Crystallizing capital gains means deliberately triggering a capital gain for tax purposes, even if you don't intend to sell the underlying asset on the open market. While it seems counterintuitive to pay tax earlier, it's a powerful tax planning strategy in Canada with several significant benefits. Read more.