The Income Tax Act (Canada) contains provisions, such as sections 84 and 85, which permit the parties to elect to have the transfer take place at an agreed upon price, generally the transferor’s cost. In such a case, the transferor’s cost will become the transferee’s and tax on the transfer will be deferred until the property is subsequently disposed of by the transferor.

The following are examples of where rollovers are typically used:

• An individual who operates a business as a sole proprietorship wishes to operate as a corporation. The individual will transfer the assets of the business to the corporation in exchange for shares in the corporation. The parties would elect to have the assets transferred at the individual’s cost, thereby deferring any capital gains on the transfer.
• A shareholder owns shares in an operating company and wishes to hold the shares through a holding corporation. A holding corporation would be incorporated and the shareholder would transfer their shares in the operating corporation to the holding corporation. In return, the shareholder would receive shares of the holding corporation. The parties would elect to have the transfer take place at the transferor’s cost, thereby deferring capital gains on the increased value of the shares.

At Burshtein Law, we frequently work with our clients and their professional advisors on corporate reorganizations. To learn how we can help you, contact us to schedule a consultation.