SECTION 85 ROLLOVER - ELIGIBLE PROPERTY
To schedule an appointment, contact our law firm at 403-400-4092 or Chris@NeufeldLegal.com
While a section 85 rollover is an important corporate tax planning strategy, which has exceedingly specific requirements to realize the potential tax benefits that are prescribed by the Income Tax Act (Canada). To implement a section 85 rollover, it is necessary that both the transferor (the person or entity transferring the property) and the transferee (the corporation receiving the property) must be eligible, and the property itself must be Eligible Property.
For purposes of a section 85 rollover, Eligible Property generally includes the following:
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Capital Property: This is a broad category that includes both depreciable property (like buildings, machinery, and equipment) and non-depreciable property (like land, shares, and other investments).
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Eligible Capital Property: This refers to intangible assets such as goodwill, customer lists, and trademarks that are used to earn business income. Inventory: This includes goods held for sale by a business. However, there is a key exception: real property (land and buildings) that is held as inventory is generally not eligible.
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Canadian and Foreign Resource Property: This includes rights to drill for and extract resources like oil and gas.
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Certain Property of Non-Residents: In specific circumstances, real property, an interest in real property, or an option on real property owned by a non-resident person and used in a business carried on in Canada can be eligible.
Certain forms of property are generally viewed as not being Eligible Property (or not advisable for :
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Cash: Cash is not considered eligible property for a Section 85 rollover.
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Accounts Receivable: While accounts receivable can be part of a business transfer, they may not be included in a Section 85 rollover unless they are being transferred along with all or substantially all of the other assets of the business.
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Real property held as inventory, interests in real property, and options on real property: As noted above, these types of property are typically excluded.
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Property expected to generate a capital loss: While not strictly "ineligible," it is generally not advisable to transfer property with an accrued loss under section 85 because the rollover would prevent the taxpayer from recognizing the loss for tax purposes.
Given the complexity and potential for severe tax penalties, it is critical that your section 85 rollover is correctly structured, with the appropriate legal and supporting paperwork, such that it might effectively respond to any scrutiny. With over two decades of legal experience, which includes designing and implementing a multitude of section 85 rollovers and other corporate tax planning strategies, we can put that knowledge and experience to use for the advancement of your business.
Our law firm strives to provide strategic tax-driven legal advice and direction to Calgary businesses looking to optimize their business structures and corporate transactions. Contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 to schedule a confidential initial consultation for your business' tax structuring and tax planning initiatives.
