What is a tax rollover?
Principle
A tax rollover allows property to be transferred without immediately triggering the tax that would normally apply on the capital gain or recapture. The tax is deferred, not eliminated: the acquirer inherits the tax cost of the property.
Main rollovers
- Section 85 ITA: transfer of property to a taxable Canadian corporation in exchange for shares, at an elected amount between the tax cost and fair market value. Used when incorporating a sole proprietorship or for an estate freeze. Form T2057 federally and TP-518 in Quebec, within the deadlines;
- Section 73: transfer of property to a spouse or common-law partner (by gift, on separation or at death, s. 70(6));
- Sections 51 and 86: exchange or reorganization of shares;
- Section 87: amalgamation of corporations; s. 88: winding-up of a subsidiary;
- transfer of farm or fishing property to children (s. 73(3)).
Precautions
The consideration received must include shares; non-share consideration (boot) above the tax cost triggers tax. Attribution rules, the general anti-avoidance rule and the valuation of property must be considered. These operations should be planned with a tax lawyer or accountant.
