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When seeking to optimize your business operations and tax efficiency, it often proves advantageous to transfer assets or shares to an alternate business entity. Whereas such a business entity could prove more efficient from a tax and/or operational perspective, there is the concern that making such a transfer could result in adverse tax consequences. Fortunately, the Income Tax Act (Canada) provides for appropriate relief an immediate taxable event, through the availability of a corporate rollover. When undertaken in accordance with the Income Tax Act (Canada), rollovers allow for the deferral of the tax until its disposition to a third party.

Share-for-Share Exchange - section 85 and section 85.1 of the Income Tax Act.

A section 85 rollover enables a taxpayer to elect to transfer “eligible property” to a taxable Canadian corporation in exchange for consideration that includes at least one share of the corporation. “Eligible property” includes most capital property, Canadian or foreign resource property, eligible capital property and inventory, other than inventory that is real property. Where the taxpayer and the corporation agree upon an amount that does not exceed the fair market value (FMV) of the exchanged property disposed of and is not less than the FMV of any non-share consideration that is received, the amount agreed upon becomes, subject to certain specific limitations, the taxpayer's proceeds of disposition and the corporation's cost of the exchanged property. By choosing an appropriate amount within those limits the exchanged property can be transferred on a tax-deferred basis, whereby the corporation assumes the taxpayer's potential income tax liabilities for the exchanged property.

Meanwhile, a section 85.1 rollover is designed to provide a tax-free rollover to a taxpayer who held shares in an acquired corporation and as a result of the takeover or attempted takeover, the taxpayer exchanged those shares for shares in the corporation that purchased the acquired corporation. In order for the rollover to apply, the taxpayer must have held the shares in the acquired corporation as capital property and the consideration received for these shares must be newly issued shares of the purchasing corporation. The cost to the purchaser of each of the shares of the acquired corporation is generally the lesser of FMV of the share and its paid-up capital (PUC).

Exchange of Shares by a Shareholder in course of Reorganization of Capital - section 86 of the Income Tax Act. A section 86 share exchange facilitates a tax-free rollover in the situation where, under a reorganization of the capital structure of a company, a taxpayer disposes of all the shares of any particular class of the capital stock of the company in consideration for which property is receivable by the taxpayer from the corporation that includes other shares of the capital stock of the company.

Share Conversion - section 51(1) of the Income Tax Act. A section 51(1) exchange permits a taxpayer to exchange a convertible property issued by a corporation for shares of the corporation on the basis of a tax-free rollover. Convertible properties are capital property such as a share, bond, debenture or note of the corporation that contains a conversion privilege. In the course of an exchange of convertible property, a taxpayer may be entitled to receive a fractional interest in a share.

For knowledgeable and experienced tax law representation for corporate tax rollovers and other tax planning strategies, contact tax lawyer Christopher R. Neufeld at 403-400-4092 (Calgary, Alberta) / 416-887-9702 (Toronto, Ontario) or

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as legal advice. You should not rely upon, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. The law firm of Neufeld Legal PC would be pleased to discuss legal matters referenced in this website upon their retention in accordance with applicable requirements pertaining to client retention by this law firm.


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Tax Lawyer Christopher Neufeld with the business law firm of Neufeld Legal Professional Corporation, is admitted to practice law in Alberta and Ontario (Canada) and New York State (United States of America).  Christopher's legal practice focuses primarily on business law, in particular corporate commercial transactions and contract work  - directed at transactional tax optimization and effective tax planning. The content of this website is purely for informational purposes and should not be relied upon - as you should consult a lawyer with respect to the specifics of your particular legal matter.  Please review our legal disclaimer and privacy policy prior to contacting us and be advised that contacting us does not create a lawyer-client relationship. National headquarters: 1600, 144 - 4th Avenue SW, Calgary, Alberta. COPYRIGHT 2010-12.

Business Tax Planning: Corporate Tax Planning; Multi-Jurisdiction Tax Planning; Offshore Tax Planning; Business Succession Planning; Tax Loss Planning / Utilization
Personal Tax Planning:
Individual Tax Planning; High Wealth Tax Management; Family Succession Planning; Estate & Gift Taxation; Non-Canadian Tax Planning

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