What can I receive back when I transfer assets into my corporation?

The one hard rule: at least one share must come back

Whatever else the corporation gives you, the deal must include at least one share of its capital stock issued to you as part of the consideration, because without share consideration section 85 simply does not apply. The rollover is, at its core, an exchange of an asset for an ownership stake; the Act tolerates plenty of other consideration alongside, but it will not treat a pure sale for cash or debt as a rollover. One share is genuinely enough to satisfy the rule, which is why some transfers close with a single preferred share beside a large promissory note.

The share requirement is not a technicality; it is the theory of the whole section. Parliament defers the tax because you have not really cashed out: you have swapped direct ownership of an asset for ownership of a corporation that now holds it. Keep a continuing stake and the deferral is earned; take everything in cash or debt and nothing continues. That is also why the rules meter the deferral against the non-share portion of the package, because the more you take off the table now, the less there is left to defer.

Everything past that single share is open to design. The share component can be common shares, a new class of fixed-value preferred shares, or both. The non-share component, which tax practitioners call boot, can be cash, a note payable to you, or existing debt such as a mortgage that the corporation assumes. The mechanics that sit underneath, including the joint T2057 election and its deadline, are covered in what a section 85 rollover is; this page is about choosing the package well.

In practice the package is fixed in the transfer agreement before closing: the asset described, the price stated at fair market value, the consideration listed piece by piece, the share issuance resolved by the directors and any note signed the same day. The T2057 then reports what the agreement did. When the agreement and the election describe different packages, the election is the version CRA reads against you, so the documents are drafted together or not at all.

The menu: what each form of payment does for you

Each piece of consideration has a different job, and the mix is chosen against three questions: how much tax-free repayment room your cost gives you, whether you want the future growth or a frozen value, and who else will own shares. The table below is the menu as we actually use it.

The single most useful planning fact on this page is the boot ceiling: non-share consideration up to your tax cost keeps the deferral intact and comes back to you with no tax, while boot above your tax cost forces the elected amount up and triggers gain in the year of transfer. Assumed debt counts toward that ceiling just as much as a note does, which is how transfers of mortgaged property run into trouble without anyone writing a cheque. The note deserves its own page, and has one: how a promissory note works in a section 85 rollover.

When preferred shares carry the value, their terms do the heavy lifting and deserve real drafting attention. The standard freeze share is redeemable and retractable at a fixed amount equal to the value transferred, non-participating so it cannot grow, voting or non-voting depending on who is meant to control the company, and wrapped in a price adjustment clause so the redemption amount moves if the valuation is later corrected. Those terms are what CRA reads when it tests whether you truly took back full value, so they are tax documents wearing corporate-law clothes.

Cash appears on the menu more often than it appears in real closings, for the obvious reason that the corporation receiving your asset rarely has idle money. In practice the boot is usually a note, paid down as the corporation earns. The choice between cash now and a note over time is a cash-flow question rather than a tax one; the ceiling they share is identical.

The package must add up to full value, in both directions

The total consideration should equal the fair market value of what you transferred, and missing in either direction has a price. Take back too little while family members or their trust hold shares of the corporation, and the shortfall is a benefit shifted to them: the rules respond by pushing the elected amount up, taxing you on gain, without giving the corporation matching cost. That is double tax manufactured out of sloppy math, and it is the single most expensive routine error in these transactions.

It is worth seeing why the penalty is double tax and not just tax. Your elected amount is pushed up, so you pay gain now. The corporation's cost does not rise to match, so the same value is taxed again when the corporation sells, or when the enriched shares are cashed in by the family members holding them. One misvalued closing creates two tax bills on one gain, decades apart, and the second usually lands on someone who was not in the room.

Take back too much, and the excess over what the asset was worth is a benefit flowing the other way, taxable to you as a shareholder. Because both directions depend on fair market value, the valuation is not a formality; it is the load-bearing wall. A price adjustment clause in the transfer agreement, adjusting the consideration if a value is later corrected, is standard protection and CRA respects it where the original number was a genuine attempt. On transfers where the asset itself is hard to value, a business or its goodwill, the clause is the difference between a revised number and a ruined transaction.

For hard-to-value assets the discipline is the same as anywhere else in a rollover: a written valuation with its assumptions stated, prepared before closing rather than reverse-engineered after, and consideration terms that reference it. Marketable securities need none of that; goodwill and private-company shares need all of it.

The quiet numbers: where your cost and paid-up capital land

The elected amount you and the corporation choose gets allocated across the package in a fixed order, and the order is not negotiable. Boot absorbs cost first, at its value; preferred shares take what remains, up to their value; common shares get whatever is left, which is frequently nothing. That is why the common shares in a classic rollover carry a nominal cost base: the cost was spent on the boot and the preferreds before the commons were reached.

Paid-up capital, the amount you can extract from shares tax-free on a return of capital, is ground down to the elected amount minus the boot. The shares can carry a large redemption value, but their PUC stays small, so redeeming them later produces a deemed dividend rather than a tax-free return. This is by design: the system lets your original tax cost come back to you once, through the boot, and treats everything above it as future dividend or gain. One more caution belongs here: when the property you transfer is shares of another corporation, a separate anti-stripping rule in section 84.1 can recharacterize boot as a taxable dividend, so share-for-share transfers need advice before any note is signed.

The paid-up capital number matters most on the day value comes back out, because it decides which tax regime greets it. Sell the shares to a third party and the low cost base produces a capital gain. Have the corporation redeem them instead, and everything above paid-up capital is a deemed dividend, taxed on dividend rules with no capital treatment. Owners who plan to hold until a family transition or an estate event will usually meet the redemption route, not the sale, which is why the PUC arithmetic set at the rollover follows the family for a generation.

None of these numbers appear in the legal agreement, and all of them govern what you can do for the next twenty years. As a corporate reorganization and tax planning CPA in Ontario, we map the consideration, the cost allocation and the paid-up capital before the lawyer drafts, because fixing a share class after closing is a reorganization of its own.

What changes the answer

Six facts decide what your package should look like:

• Your tax cost against the asset's value: cost is your boot room, the amount you can take in cash or notes with no tax now and none on repayment.
• When you want the money: a note pays you over the years; preferred shares hold value until redeemed; commons pay you last and grow most.
• Who else holds or will hold shares: family in the structure makes full-value consideration and the valuation file critical, and brings the benefit rules into play.
• Whether this is a freeze: passing growth to children or a trust points to fixed-value preferreds with a price adjustment clause, not commons.
• What the property is: transferring shares of another corporation engages the anti-stripping rules and can shrink how much boot is safe.
• The corporation's capacity to pay: a note only helps if cash flow can honour it, and preferred shares only freeze cleanly if redemption is realistic someday.

We design the consideration package alongside the elected amounts and the share terms as one defined-scope file under Strategic Projects, coordinated with your lawyer through our corporate restructuring work. A free 15-minute discovery call tells you whether your transfer is a single preferred share and a note, or something that needs more design.