The Essentials of Section 85 Rollover in 2024: Eligibility and Consideration

Understanding the complexities of tax planning is pivotal for successfully navigating the financial landscape. One integral component of Canadian tax legislation is the Section 85 rollover- a brilliant tool for deferring tax implications when transferring appreciated property to a corporation. Despite being in effect for several years, the principles of Section 85 have ushered in some changes in 2024.

This article aims to shed light on the updated criteria and considerations surrounding Section 85 in 2024. It is designed to help Canadian taxpayers make informed decisions about their financial transactions and manage potential tax implications successfully.

Who is Eligible?

The initial point of inquiry in applying the Section 85 rollover is the eligibility criteria. This tax planning tool is accessible to individuals, corporations, trusts, and partnerships, as long as all partners are residents of Canada. In terms of property, the rollover covers both depreciable and non-depreciable capital property, along with resource property and inventory.

At Charles Ghadban Accounting, our experienced team offers bespoke tax planning and compliance services. We can ensure that you meet all eligibility requirements for a Section 85 rollover, thus streamlining the transfer process.

Consideration for Section 85 Rollover

Understanding the consideration for Section 85 Rollover is crucial to optimize your transactions. Here are the key points:

- The consideration for the asset transfer includes at least one share of the transferee corporation's capital stock.

- The type of additional consideration that can be received is flexible.

- This flexibility provides taxpayers with a certain degree of freedom to negotiate their arrangements.

Our expertise at Charles Ghadban Accounting entails a comprehensive understanding of tax considerations. With our guidance, you can optimize the value of your consideration and successfully navigate the complexities of the tax legislation.

Tax Implications

Central to the Section 85 rollover is the concept of the "agreed amount". This amount, mutually decided by the parties, establishes the cost basis for the transferee and the proceeds of disposition for the transferor. Consequently, this agreed amount can defer the recognition of income or capital gains, which would otherwise be a direct result of the transfer.

Our tax planning professionals at Charles Ghadban Accounting can help you strategically choose the agreed amount. This careful consideration can ensure you minimize your tax liability and protect your financial interests.

Timing is Everything

The timing for the implementation of Section 85 rollover is of immense importance. Prior to June 25, 2024, taxpayers can crystallize any current accrued capital gains at the 50% inclusion rate. Post this date, the rate rises to 66.67% for corporations and trusts and for individual gains over $250,000. Therefore, executing transactions prior to the above-mentioned date can provide taxpayers with considerable financial advantages.

Additional Considerations

Taxpayers should take into account that the agreed amount elected under Section 85 directly impacts the capital gain or recapture realized by the transferor. Moreover, it is crucial to be aware of the potential application of Section 84.1 when applying Section 85.

Final Thoughts

In the ever-evolving landscape of tax legislation, the Section 85 rollover remains a potent tool for taxpayers in 2024. It provides an effective way to defer taxation on the transfer of appreciated property to a corporation. However, navigating the intricacies of tax planning can be challenging.

At Charles Ghadban Accounting, our dedicated team of seasoned professionals is equipped to support you through every step of your financial journey. With services ranging from tax planning to corporate structuring and compliance, we are committed to ensuring your financial success.

Don’t let tax issues become a hindrance in your financial journey. Contact Charles Ghadban Accounting and let us help you maximize your financial potential.