What value should I use when I transfer assets into my own corporation?

The elected amount is a chosen tax number, not the price

The first thing to separate is the legal deal from the tax election, because they use different numbers on purpose. Legally, the corporation should pay you full fair market value for the asset, in some mix of shares and other consideration; that is the price in the transfer agreement. The elected amount is a second, purely tax-side figure that you and the corporation choose together and record on Form T2057, and the Income Tax Act treats it as your proceeds of sale and as the corporation's cost, whatever the agreement says the price was.

That one number therefore does three jobs at once. It fixes how much gain, if any, lands on your personal return for the year of the transfer. It becomes the corporation's cost in the asset, which drives its future depreciation claims and its own gain on an eventual sale. And it flows into the cost of what you took back, allocated across the consideration in a fixed order. Choosing it is the entire substance of the rollover; the form is only where the choice is written down. The rest of the machinery, including the deadline and the share requirement, is covered in what a section 85 rollover is.

A concrete shape helps. Suppose you transfer equipment worth far more than its depreciated balance: the agreement sells it to the corporation at full value, paid in shares and perhaps a note, while the election records the depreciated balance. Your return shows no income from the transfer, the corporation starts from your old balance for tax, and the difference between price and election simply waits inside the shares and the asset. The two numbers coexist because they answer different questions: what was paid, and what is taxed.

The boundaries: how high and how low the election can go

You choose freely, but only inside limits the Act draws around each property. The ceiling is always fair market value; you can never elect above what the asset is worth. The floor depends on what the asset is. For non-depreciable capital property such as land, shares or portfolio securities, the floor is broadly the lesser of your tax cost and fair market value. For depreciable property such as a building or equipment, the floor is built around the least of its undepreciated capital cost, its original cost and its value, which is what keeps past depreciation claims from being quietly erased. And for any property, the elected amount cannot fall below the value of the non-share consideration you take back, so cash, a note or assumed debt sets its own floor.

Two properties never make it into the choice at all. Cash has no accrued gain, so it needs no election. Real property held as inventory is excluded from section 85 entirely, so a flipper's stock-in-trade cannot be rolled at any number. Everything else is elected property by property, with each asset getting its own figure inside its own range on the same form.

Goodwill and other intangibles follow the depreciable pattern now: they sit in a capital cost allowance class of their own, so a business transferring its goodwill elects around that class balance the same way it would for equipment. On the incorporation of a professional practice or the reorganization of an operating business, goodwill is often the biggest single number on the form and the one with the widest honest valuation range, which is why it draws the closest scrutiny and needs the most careful support.

The floors are self-correcting rather than polite. Elect below a floor and the Act deems the amount back up to it; elect above the ceiling and it is deemed back down. A lowball number does not save tax, it just means the form no longer says what you think it says, and the corrected figure can trigger results nobody planned for.

Note where fair market value sits in all of this: it is the ceiling, the reference for the boot rules and the benchmark the benefit rules test against, but it is not automatically the election. Owners who instinctively write market value on the form trigger the entire gain the rollover existed to defer. The default instinct should run the other way, cost first, moving up only for a reason.

What the number controls after closing

Your side is settled first: the elected amount is your proceeds, so the gap between it and your tax cost is your gain for the year, and electing at cost makes that gap zero. The corporation's side mirrors it: the elected amount becomes its cost, which means a low election hands the corporation a low base for future depreciation and a larger built-in gain on any later sale. Deferral is a trade, not a gift, and the corporation is the one carrying the deferred tax forward.

The number then spreads across what you received, in a strict order. Non-share consideration absorbs cost first, at its value; what remains goes to preferred shares up to their value; whatever is left lands on the common shares, which is why the growth shares in these transactions often carry almost no cost base. The paid-up capital of the shares is ground down to the elected amount less the non-share consideration, so the shares cannot be used to pull untaxed value back out later. What you take back, and in what mix, is its own decision with its own traps, covered in what consideration can be received in a section 85 rollover.

One discipline applies across the whole form: elections are made property by property, and the ranges never blend. A gain on one asset cannot be averaged against a loss on another; each line stands alone inside its own limits. Assets sitting at a loss generally should not be rolled at all, because a sale to your own corporation runs into the stop-loss rules and the loss is denied, so loss positions get dealt with outside the election while the gain positions ride through it.

When electing above cost is deliberate and smart

Full deferral is the default, not the rule, and there are honest reasons to trigger gain on purpose. If you carry unused capital losses, electing above cost realizes gain they absorb, and the corporation gets a higher cost base for free. If the property is shares that qualify for the lifetime capital gains exemption, electing above cost can crystallize the exemption, up to the 1.25 million dollar limit, locking in tax-free gain while the shares still qualify; transfers of shares also engage a separate anti-stripping rule, so that plan needs advice before signatures. And where non-capital losses are approaching expiry, a deliberate gain can put them to work before they die.

The trade-offs run through the same machinery in reverse. On depreciable property, electing above the undepreciated cost brings recapture into your income as regular income, not capital gain, so a step-up on a building has a very different price than a step-up on land. Every extra dollar of election also raises the consideration math and the paid-up capital numbers that follow from it. This is the judgment call at the centre of every rollover we run as a corporate reorganization and tax planning CPA in Ontario: the right elected amount is a planning decision about this year's return, the corporation's future cost and the estate picture, made once and papered properly, because amending a poor choice later ranges from expensive to impossible.

There is also a defensive reason to use the room while it exists. An owner expecting to sell the corporation within a few years, or holding losses that will not keep their value forever, sometimes prefers a known, managed gain now over a larger uncertain one later. That is a judgment about the future rather than arithmetic, and it should be made with the whole plan on the table, not inside the form on the day before the deadline.

Valuations, price adjustment clauses and the deadline

Every limit in the system leans on fair market value, so the election is only as strong as the valuation behind it. For real estate that means an appraisal; for a business or its goodwill, a supportable valuation with working papers; for portfolio securities, market prices do the job. Because values are estimates, transfer agreements carry a price adjustment clause, which CRA respects where the parties made a genuine attempt to get value right: if the number is later revised, the consideration adjusts instead of the tax result collapsing. Skipping the clause converts an honest valuation miss into a benefit problem with double-tax consequences.

The paperwork has one hard date. The T2057 is due by the earliest day on which any party to the election has to file a return for the year of the transfer, and a late election is accepted for up to three years only, with a penalty that grows by the month. The agreement, the share terms, the valuation file and the election should be prepared as one package, which is how we run them inside Strategic Projects. Whether your transaction needs the election at all, and what happens when it is missed, is covered in when a section 85 election is required.

Keep the whole file, permanently. The signed agreement, the valuation support, the director resolutions creating the share classes, the T2057 as filed and proof of the filing date all need to survive as long as the corporation does, because the elected amounts feed cost numbers used decades later, on a sale, a redemption or an estate. Reconstructing a twenty-year-old election sits somewhere between painful and impossible; filing one complete package now is cheap.

What changes the answer

Six facts drive what the elected amount should be on your transfer:

• What the property is: depreciable assets carry a UCC floor and a recapture cost to any step-up; land and securities do not.
• The size of the accrued gain: the bigger the gap between cost and value, the more the election carries and the more the valuation matters.
• How much you take back in cash, notes or assumed debt: boot sets a floor of its own, and boot above cost forces gain regardless of intent.
• Losses available on your return: unused capital or expiring non-capital losses can make a deliberate gain nearly free.
• Exemption eligibility: shares that qualify for the lifetime capital gains exemption may justify electing high to crystallize it.
• Valuation confidence: an uncertain value needs a price adjustment clause and conservative elections.

We set elected amounts as part of the whole transaction design: your return, the corporation's future cost, the share terms and the estate consequences worked as one file, with the T2057 filed on time. A free 15-minute discovery call is enough to tell you whether your transfer is simple or needs the full treatment.