Yes, and section 85 is the provision that makes it possible
You can move most property into a corporation without paying tax on the way in, because section 85 of the Income Tax Act exists for exactly that purpose. The default rule is the problem it solves. A transfer of property to a corporation you own is treated as a sale at fair market value whether or not a dollar changes hands, so handing over appreciated shares, a building or the goodwill of a business you built would otherwise put the entire accrued gain on your personal return in one year, with no sale proceeds behind it to pay the bill.
A tax-deferred transfer under section 85 switches that default off. You and the receiving corporation jointly choose a transfer value, called the elected amount, and record it on the T2057 election. The Act then treats that figure as your proceeds and as the corporation's cost for tax purposes, whatever the legal agreement says the price was. Choose your tax cost and no gain arises today.
Deferred is the operative word. Nothing is forgiven and nothing disappears: the accrued gain simply moves off your return and into two other places, the corporation's cost in the property and the cost of the shares you took back. It resurfaces the day the corporation sells the property, or the day you sell or redeem those shares. What the rollover buys is control over timing, and timing is worth real money when the alternative is a tax bill in a year you did not choose and cannot fund.
The word rollover is informal, and it hides something worth knowing. There is no separate transaction called a rollover. There is a transfer, papered by a lawyer, and there is an election, prepared by an accountant, that changes how the transfer is taxed. Those two pieces are built by different people on different timelines, which is why a transfer that closes without the election is not a partial rollover. It is a taxable sale.
What has to be true before the election is available
Four conditions have to line up, and every one of them is structural rather than a matter of judgment.
- The property has to be eligible property. That covers most of what owners actually move: capital property such as land, buildings, portfolio securities and private company shares; depreciable assets such as equipment and vehicles; goodwill and other intangibles; and inventory other than real property held for resale. A builder's lots and a house bought to flip sit outside the section entirely.
- The recipient has to be a taxable Canadian corporation. Your Ontario company qualifies, whether it was incorporated years ago or the week before the transfer.
- You have to take back at least one share. The deferral works by hanging the postponed gain onto shares you continue to hold, so a transfer paid for entirely in cash or a note cannot qualify. One share is genuinely enough to meet the rule.
- Both parties have to sign and file form T2057 on time. The deadline is the earliest date on which anyone party to the election has to file a return for the year of the transfer, which is frequently not the date either side expects.
Notice what is missing from that list: the size of the transaction, the reason behind it, and whether anyone thought about tax at the time. The election is the mechanism itself, not paperwork that records a decision made elsewhere, and a transfer without it lands at fair market value no matter what the parties believed was happening. Which everyday transfers need the form, and which genuinely do not, is set out in when a section 85 election is required.
Two mechanical points follow from the wording. The election is joint, so the corporation signs alongside you, and where two or more people transfer property into the same company, each transferor files a form of their own. And the election is made property by property: an operating business moving into a corporation is really a schedule of small transfers, land at one number, equipment at another, goodwill at a third, each sitting inside its own limits.
What owners actually move, and why
Five transfers account for nearly every rollover we run, and they are easiest to recognize by the property involved rather than by the tax plan sitting behind it.
- An unincorporated business. The equipment, customer relationships and goodwill of a sole proprietorship roll into a new corporation at cost. Goodwill is the one that matters, because you built it rather than bought it, so its tax cost is usually close to nothing while its value is most of what the business is worth. This is the ordinary tax spine of an incorporation done properly.
- Shares of your operating company. Moving opco shares up to a new holding company is the single most common rollover in owner-managed Ontario businesses, and it carries rules of its own because you are on both sides of the deal. We walk that one through in how you transfer operating company shares to a holding company.
- A rental or commercial property. Real estate held as capital property can roll in, but the income tax deferral is only part of the picture: Ontario land transfer tax and HST run on their own rules and can make a transfer that is free of income tax expensive anyway.
- An investment portfolio. Marketable securities move easily because their values are not debatable. Whether they should move is a separate question, since investment income earned inside a corporation is taxed at a high rate until it is paid out.
- Equipment, vehicles and intangibles. Depreciable assets carry their own floor tied to the undepreciated balance, which exists so that a transfer cannot quietly erase depreciation you have already claimed.
There is a sixth case that looks like a rollover and often is not. Where the corporation receiving your shares is a buyer rather than a company you own, a different provision may defer the gain automatically with no election at all, which is covered in what a share-for-share exchange is.
Two habits are worth building early. Not every asset should move just because it can: property held personally sometimes belongs there for creditor, land transfer tax or exemption reasons. And nothing should move before someone has written down the tax cost of each item, because that number sets the floor for the whole transaction.
What a section 85 rollover does not do
The election is narrower than its reputation: it addresses income tax on the transfer itself, and nothing else. Most of the disappointment we are asked to repair comes from assuming it reaches further than that.
| Tax or cost | Does the election defer it? | What that means in practice |
|---|---|---|
| Capital gain on the property you transfer | Yes, if you elect at your tax cost | The gain moves into the corporation and into the shares you take back |
| Recapture on depreciated equipment or buildings | Yes, if you elect at the undepreciated balance | Electing higher pulls recapture into income now, taxed as regular income |
| Tax when the corporation later sells the property | No | The deferred gain is still there, waiting inside the company |
| HST on transferred business assets | No | Relief for a business sold as a going concern is a separate election with its own conditions |
| Ontario land transfer tax on real property | No | Moving a building into a corporation can attract it even between companies one family owns |
| Tax on getting the value back out later | No | Salary, dividends and share redemptions are each taxed on their own rules |
Three more limits belong beside that table. The election cannot manufacture a loss: floors stop you from electing below cost, and the stop-loss rules deny most losses on a sale to your own corporation anyway, so property sitting under water is dealt with outside the rollover. It cannot rescue a valuation you cannot support, because every limit in the section is measured against fair market value and the hardest number in an owner-managed business is goodwill. And it does not reduce the legal work: the transfer agreement, the share terms and the directors' resolutions still have to exist, and they have to say the same thing the election says.
There is one more piece the primer should not skip, because it is where deferrals quietly become tax bills. You are allowed to take back cash, a promissory note or debt the corporation assumes alongside your shares, and practitioners call that boot. Boot up to your tax cost keeps the deferral intact and can be repaid to you tax-free later; boot above it triggers gain dollar for dollar, and assumed debt counts even though nobody writes a cheque. When the property is shares moving to a corporation you control, an anti-stripping rule polices the same line and can turn the excess into a taxable dividend instead. How boot, elected amounts and share terms are designed together is the subject of section 85 rollovers explained for business owners.
What changes the answer for your transfer
Whether a rollover is right, and how it should be built, comes down to six facts about your situation rather than anything general about the section:
- The gap between value and tax cost. No accrued gain means no need for an election at all; a large one makes the election essential and the valuation load-bearing.
- What the property is. Land and securities behave differently from equipment, and real estate brings land transfer tax and HST questions the election never touches.
- How much you want to take out in cash or notes, now or over the next few years, because your tax cost sets the ceiling on what can come back to you tax-free.
- Whether you are moving assets or shares. Share transfers to a corporation you do not deal with at arm's length raise the anti-stripping rules, and that is the most common fact pattern of all.
- Who else holds shares of the receiving corporation. Family shareholders bring the benefit rules and the tax-on-split-income regime into the design before a single number is chosen.
- The calendar. The year-ends of both parties decide the T2057 deadline, and a transfer late in a corporate year can leave a much shorter runway than anyone assumed.
Sometimes the honest answer is that no rollover is needed. If the gain is small, paying the tax now and giving the corporation full cost base in the property is simpler and occasionally cheaper. If the structure problem is cosmetic, doing nothing beats paying for a reorganization. The job of a corporate reorganization and tax planning CPA in Ontario is to pick the cheapest tool that reaches the goal, not to file the most impressive form.
When a rollover is the right tool, it runs as a defined-scope project with a beginning and an end: confirm what the transfer is meant to achieve, value the property, set the elected amounts and consideration on a schedule everyone can read, instruct the lawyer so the documents match, file the T2057 on time, and hand the bookkeeper entries that reflect the plan. That is the shape of a Strategic Projects engagement with us: a free 15-minute discovery call first, then a written scope and fee before any work starts.
