By Raz Toor, Business and Corporate Lawyer, Falcon Law PC
Business owners are often introduced to the idea of a “rollover” by their accountant.
The conversation usually starts with something like this: you own shares or business assets personally, your accountant wants those assets moved into a corporation or holding company, and they have recommended doing the transfer on a tax-deferred basis under section 85 of the Income Tax Act.
From the client’s perspective, that can sound like an accounting exercise. It is not.
A Section 85 rollover has a tax component, but it also requires an actual legal transaction. Property has to be transferred, shares or other consideration may need to be issued, corporate approvals have to be completed, and the corporation’s minute book needs to reflect what actually happened.
At Falcon Law PC, we generally approach these transactions as a collaboration between the client’s accountant or tax advisor and our corporate law team. The accountant determines the appropriate tax treatment and elected amounts. Our role is to make sure the corporate transaction properly implements that plan.
What Is a Section 85 Rollover?
Normally, transferring property to a corporation can create a disposition for tax purposes. If the property has increased in value, that could result in an immediate taxable gain.
Section 85 of the federal Income Tax Act allows certain property to be transferred to a taxable Canadian corporation using an agreed or “elected” amount, provided the statutory requirements are satisfied. The consideration received by the transferor must include shares of the corporation.
The practical purpose is usually to defer some or all of the tax that might otherwise arise on the transfer.
That distinction is important. A rollover generally does not make the tax disappear. It defers the recognition of the gain by carrying the relevant tax attributes into the new structure.
The taxpayer and corporation make a joint election, commonly using CRA Form T2057.
When Do Business Owners Actually Use a Rollover?
One common situation is the incorporation of an existing business.
For example, someone may have operated a business personally for several years and built up valuable equipment, inventory, intellectual property or goodwill. When they later incorporate, simply transferring those assets to the new corporation at fair market value may have tax consequences.
A properly structured rollover may allow eligible assets to move into the corporation without triggering all of that tax immediately.
Rollovers also arise frequently in corporate reorganizations. A business owner may already have an operating company but later decide, usually with tax advice, to establish a holding company or reorganize the ownership of several corporations.
That is where the legal mechanics become more involved.
A 2026 Example From Our Corporate Practice
Earlier in 2026, we assisted an Ontario business owner with a multi-corporation reorganization connected to a growing franchise operation.
The client’s accountant had recommended a Section 85 rollover as part of the proposed structure. Our job was not to independently determine the client’s elected tax values. Instead, we worked from the tax plan and dealt with the corporate implementation: reviewing the existing corporations, considering the share structure, preparing the required resolutions and transaction documents, and ensuring the minute books reflected the new ownership arrangement.
That is a fairly good example of how these files work in practice.
The accountant and lawyer are solving different parts of the same transaction. If the tax advice says that certain shares are to be transferred in exchange for particular classes of shares, the corporate records need to actually show that transaction.
The Corporate Structure Has to Support the Tax Plan
One issue we sometimes encounter is that an accountant has designed a sensible tax reorganization, but the corporation’s existing articles do not contain the share classes required to implement it.
For example, the transaction may contemplate preferred shares with particular redemption, retractability or dividend rights. If those shares do not exist under the corporation’s articles, an amendment may be required before the rollover can proceed.
That can involve articles of amendment, shareholder approval and updates to the minute book before the actual transfer is completed.
This is why a rollover should not simply be treated as a T2057 filing exercise.
What Property Can Be Transferred?
Section 85 applies to specified categories of “eligible property” under the Income Tax Act. Depending on the transaction, that can include certain capital property, inventory, shares and other business property.
The specific tax treatment depends on the type of property being transferred.
In a corporate reorganization, the property being transferred may simply be shares of an existing operating company. In an incorporation transaction, there may instead be several categories of business assets that need to be dealt with separately.
That distinction matters because the legal documentation should identify what is actually being transferred rather than vaguely stating that “the business” has been rolled into the corporation.
The Elected Amount Is a Tax Decision, Not Just a Number in the Agreement
A Section 85 election allows the parties to agree on an elected amount within limits imposed by the Income Tax Act.
The elected amount affects matters such as the transferor’s proceeds of disposition and the corporation’s tax cost of the transferred property.
This is one of the areas where I generally defer to the client’s accountant or tax advisor.
Lawyers should understand the structure well enough to ensure that the legal documents are consistent with the tax plan, but the elected amount should not be guessed at simply to complete the corporate paperwork.
Fair market value is also important. Depending on the transaction, accountants may recommend that the client obtain a valuation or otherwise establish support for the value being used in the reorganization.
What Does the Lawyer Actually Prepare?
The documents depend on the transaction, but a rollover might require a transfer agreement, share purchase or exchange documentation, directors’ resolutions, shareholders’ resolutions, share issuances, share cancellations or redemptions, amendments to the corporation’s articles, and updates to the securities register and other corporate records.
There may also be promissory notes or other non-share consideration depending on the structure recommended by the tax advisor.
When the transaction is complete, someone reviewing the corporate minute book later should be able to understand what occurred.
That matters more than many owners realize. These reorganizations often become relevant again during a financing, shareholder transaction, sale of the business or tax review several years later.
If a corporation’s records have not been properly maintained, we may first need to address its corporate minute book before implementing the reorganization.
The Section 85 Election Still Has to Be Filed
The legal closing does not itself complete the tax election.
The taxpayer and corporation must jointly make the prescribed Section 85 election. For an individual or corporation transferring property under subsection 85(1), this is generally done using CRA Form T2057.
The filing deadline is generally based on the earliest date on which any party to the election must file its income tax return for the taxation year in which the transfer occurred.
Late elections can sometimes be accepted, but penalties can apply. CRA guidance also provides different treatment for elections filed within three years after the prescribed filing date and elections filed later than that.
In practice, we recommend that the client confirm responsibility for the T2057 with their accountant rather than assuming that the corporate lawyer will be filing the tax election.
A Rollover Is Not Always the Same as Creating a Holding Company
Clients sometimes use “holding company,” “reorganization” and “rollover” interchangeably. They are related concepts, but they are not the same thing.
A holding company is simply a corporation that holds assets, commonly shares of another corporation or investment assets.
A rollover is one possible tax mechanism that may be used when assets or shares are transferred as part of creating or reorganizing that structure.
For example, a business owner may want a new holding corporation inserted above an existing operating corporation. Depending on the tax plan, a Section 85 rollover may be one part of that transaction. Other provisions of the Income Tax Act, including Sections 51, 85.1 or 86, may instead or additionally be relevant in certain reorganizations.
That is why I would not recommend starting with the assumption that every Holdco structure requires exactly the same rollover.
We discuss the broader corporate side of these structures in our guide to holding companies in Ontario.
Be Careful When Real Estate Is Involved
Moving shares between corporations is very different from transferring real property.
If land is actually being transferred from an individual or one corporation to another corporation, the parties need to consider more than federal income tax.
Ontario land transfer tax may apply. Existing mortgages and lender consent may need to be addressed. There may be HST considerations. Leases, registrations on title and other property-specific issues may also affect the transaction.
A Section 85 election under the federal Income Tax Act does not automatically eliminate Ontario land transfer tax or other consequences associated with changing ownership of real estate.
That distinction is important because clients sometimes hear “tax-deferred rollover” and understandably assume the entire transaction can occur without tax.
Where real estate forms part of a reorganization, the corporate and real estate sides should be reviewed together with the client’s accountant.
Rollovers Can Also Matter Before a Business Sale
A reorganization is sometimes undertaken because the business owner is preparing for a future sale, succession or investment.
For example, an owner may want to separate assets, reorganize shareholdings or introduce a holding company before a transaction.
Timing matters here.
If you are already negotiating a sale, it may be too late—or commercially impractical—to implement every restructuring step that would have been available if planning had started earlier. Certain tax strategies can also have their own timing requirements and anti-avoidance considerations.
We therefore prefer to know early when a reorganization is connected to a contemplated business purchase or sale.
Common Problems We See With Corporate Rollovers
The biggest problems are usually not caused by Section 85 itself. They arise because the tax plan and legal implementation do not line up.
An accountant may contemplate a particular class of shares that the corporation cannot issue. A transfer may have been discussed but never properly approved. Corporate registers may still show the old ownership years after the supposed reorganization. Or the legal documents may reflect values or consideration that are inconsistent with the tax election.
Another common issue is timing. Business owners sometimes sign documents or move assets first and only later ask their accountant whether a rollover should have been used.
It is much easier to coordinate the transaction before the transfer occurs.
Should Your Lawyer and Accountant Work Together?
For a meaningful corporate rollover, generally yes.
I prefer that we have a clear tax memo, written instructions from the accountant, or direct communication with the tax advisor before implementing a reorganization.
That does not mean every simple transaction needs a lengthy tax opinion. It means the person making the tax recommendation and the lawyer preparing the corporate documents should be working from the same structure.
That coordination is especially important where there are multiple corporations, different classes of shares, family shareholders, significant accrued gains or real estate.
How Falcon Law PC Can Help With a Corporate Rollover
Falcon Law PC assists Ontario business owners with corporate reorganizations, Section 85 rollover implementation, holding-company structures, share transfers, articles of amendment and related corporate documentation.
We can work directly with your accountant or tax advisor to implement the agreed tax plan and ensure that the corporation’s legal records match the intended structure.
For businesses that have not yet incorporated, we can also assist with Ontario and federal incorporations and structure the corporation with future ownership and tax planning in mind.
If your accountant has recommended a Section 85 rollover or corporate reorganization and you need the legal side implemented, contact Falcon Law PC to discuss the proposed structure and next steps.
This article provides general legal information only and is not tax, accounting or legal advice for any particular transaction. Section 85 rollovers and corporate reorganizations should be implemented with advice from qualified legal and tax professionals based on the particular assets, corporations and tax circumstances involved.