Section 85 Rollovers Explained for Quebec Entrepreneurs
rollover section 85As Quebec entrepreneurs grow their businesses, many eventually begin thinking about:
- tax planning;
- adding a holding company;
- preparing for a future sale;
- succession planning;
- or reorganizing their corporate structure.
In many of these situations, one of the most commonly used tools by my clients is the Section 85 rollover.
What Is a Section 85 Rollover?
A Section 85 rollover is a mechanism under the Canadian Income Tax Act that can allow certain assets or shares to be transferred to a corporation without immediately triggering taxes that would normally arise from the transfer.
In simple terms, it may allow an entrepreneur to move assets or shares into a corporation on a tax-deferred basis, provided certain conditions are met.
These transactions are frequently used in Quebec corporate reorganizations involving privately held businesses.
When Is a Section 85 Rollover Used?
Section 85 rollovers are commonly used in situations such as:
- creating a holding company (holdco);
- implementing an estate freeze;
- transferring assets to a corporation;
- exchanging shares as part of a reorganization;
- preparing a business for future growth or sale;
- succession and family business planning.
For many entrepreneurs, these reorganizations form part of a broader long-term business and tax strategy developed with their accountant or tax advisor.
Why Proper Planning Matters
Although the concept may sound straightforward, a Section 85 rollover involves important legal and tax considerations.
A properly implemented reorganization may require any or all of the following:
- new share structures;
- corporate resolutions;
- transfer agreements;
- tax elections;
- updates to the corporation’s minute book;
- coordination with accountants and tax advisors.
If the transaction is not structured properly, unintended tax consequences can arise.
A Practical Approach
Corporate reorganizations are not only about taxes. They are often about preparing a business for the future.
Whether the objective is protecting assets, simplifying ownership, preparing for succession or improving corporate structure, a well-planned reorganization can provide important long-term benefits for Quebec entrepreneurs and privately held businesses.
Given the complexity of these transactions, legal and tax advisors will often work together to ensure the reorganization is implemented properly and aligned with the client’s overall business objectives.
Planning a corporate reorganization or considering a holding company structure?
We advise Quebec entrepreneurs and privately held businesses on corporate reorganizations, tax rollovers and business structuring strategies. Contact us.
