85 Rollover

How do I transfer my proprietorship (or partnership) to a company?

This is achieved by using Section 85 of the income tax which is generally referred to as a rollover. The assets you use in your business are transferred to you company with no immediate tax consequences. The long term result could be a double taxation which is generally avoided with careful planning and the passage of time. The assets that have been paid for by yourself can be bought by the company by way of a promissory note and paid out to you from after tax profits (12% up to $500,000) on a tax free basis. The assets worth more than what you paid (usually goodwill) are paid for using special shares. You only pay tax when these shares are sold or redeemed.

How do I set up a holding company if I already have a company?
You can accomplish this by using Section85 to transfer your shares (roll them) into a holding company. The same principles apply as when you roll your proprietor assets into a company. You roll your shares into a holding company on a tax deferred basis. The holding company buys your shares with special shares. This allows future earning to belong to the holding company which also has the right to receive dividends from the operating company on a tax free basis. This procedure has been made more complicated by recent changes to the income tax act. Great care must be taken in determining if this process is available to you and your company. You should consult with a tax accountant familiar with the new requires before embarking on this type of re- organization.

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