Encyclopedia
Tax-deferred rollover to a company
An Income Tax Act provision that can let property be transferred to a corporation with the tax deferred.
For example: Hypothetical: an owner asks an accountant about moving a building into a company before a sale. (Illustration only, not a real deal.)
Official source: Income Tax Act (Justice Laws)
Example only, not a real client. Say you own a building personally and want to move it into a company. Your accountant discusses whether a tax-deferred transfer under federal tax rules could apply, along with other costs such as transfer tax.
What I’d tell a friend
Moving property into a company has tax and transfer costs. Get advice from an accountant and a BC lawyer first.
Why it matters to you
It can let you move property into a corporation without paying tax right away. Done wrong, the deferral can be lost, so get advice and file the election properly and on time.
How to use it in your deal
Owners should know that a tax-deferred rollover defers income tax but doesn't avoid property transfer tax, which usually applies when real estate is transferred to a company unless an exemption fits. Goods and Services Tax (GST) may also apply, though elections can help. The election must be filed correctly and on time with Canada Revenue Agency (CRA), and the agreed amount must be within allowed limits.
Real estate held as inventory, such as by developers, generally can't be rolled over under a tax-deferred rollover. Talk to an accountant and lawyer before transferring, since mortgages, leases and lenders' consents may be affected. Keep records of the original cost and capital cost allowance claimed, since they carry over.
A rollover can make later share sales or estate planning easier, but each case differs, so get advice on your facts. Book the accountant before the deal papers are drafted, not after closing.
Mistakes I see
Forgetting property transfer tax. Missing filing deadlines. Assuming inventory qualifies.
In BC and Vancouver
the Income Tax Act and CRA guidance; the Property Transfer Tax Act applies separately.
Tax names used here: Harmonized Sales Tax (HST). Official sources: Income Tax Act (Justice Laws) · Property transfer tax (Government of BC) · CRA GST/HST Memorandum 19.4.1
What it is
This rollover is a federal tax rule that can let you transfer certain property to a Canadian corporation and defer tax on the gain, if conditions are met.
It does not remove other costs, such as possible property transfer tax.
Before you act
Have your accountant review whether it fits your situation.
Ask a BC lawyer about transfer costs and title.
Questions to ask before you sign
- Does a tax-deferred rollover apply?
- What PTT applies?
- What's the agreed amount?
- Do lenders need to consent?
Keep reading
Lifetime Capital Gains Exemption (LCGE). It can shelter part of the gain when you sell qualifying small business shares (not assets), and your accountant confirms whether you qualify.
Related terms: Share sale, Capital gains / LCGE, Property Transfer Tax (PTT)
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.