Section 85 and Section 86 rollovers are essential Income Tax Act tools that let Canadian taxpayers transfer property or exchange shares without immediate capital gains tax. Ideal for incorporating sole proprietorships, estate freezes, or corporate reorganizations, these strategies preserve value through tax deferral while meeting CRA rules like T2057 filings.
Incorporating a Canadian sole proprietorship can trigger immediate tax on assets like equipment, inventory, and goodwill, but a Section 85 rollover allows owners to transfer these assets into a corporation on a tax-deferred basis. This example walks through how a rollover works, the T2057 election, and the main benefits and trade-offs so business owners can incorporate more efficiently under the Income Tax Act of Canada.
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