Under the Income Tax Act of Canada, Section 85 and Section 86 rollovers are powerful tax planning tools that allow individuals and corporations to restructure ownership or transfer assets without triggering immediate tax consequences. Here's a breakdown of each: 
🧾 Section 85 Rollover 
🔹 What It Is 
A Section 85 rollover allows a taxpayer (individual, trust, or corporation) to transfer eligible property to a Canadian corporation in exchange for shares, while deferring capital gains tax that would normally arise from the disposition. 
🔹 When It’s Used 
Incorporating a sole proprietorship. 
Transferring assets to a holding company. 
Estate freezes (passing future growth to family). 
Reorganizing corporate structures. 
🔹 Eligible Property 
Capital property (e.g., real estate, equipment). 
Eligible capital property (e.g., goodwill). 
Inventory. 
Resource properties. 
🔹 Benefits 
Tax deferral: No immediate capital gains tax. 
Flexibility: Transfer at an elected amount between ACB and FMV. 
Estate planning: Useful for succession and freeze strategies. 
🔹 Costs and Considerations 
T2057 form must be filed with CRA. 
Legal and accounting fees for proper structuring. 
Boot (non-share consideration) may trigger partial tax. 
Section 84.1 anti-avoidance rules may apply if shares are transferred to related parties1. 
 
🧾 Section 86 Rollover 
🔹 What It Is 
A Section 86 rollover allows a shareholder to exchange shares of one class for another class within the same corporation, typically during a corporate reorganization, without triggering immediate capital gains tax. 
🔹 When It’s Used 
Estate freezes. 
Bringing in new investors. 
Changing voting or dividend rights. 
Succession planning within a family business. 
🔹 Requirements 
Exchange must be at fair market value. 
New shares must replace old ones with different rights. 
Must file appropriate CRA forms to elect rollover treatment. 
🔹 Benefits 
Tax deferral: No capital gains tax until new shares are sold. 
Smooth transition: Useful for passing control or ownership. 
Flexibility: Allows restructuring without liquidation. 
🔹 Costs and Considerations 
Legal documentation and valuation required. 
CRA scrutiny if not properly structured. 
Future tax liability when new shares are sold2. 
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