You bought your first Edmonton rentals in your own name. It made sense at the time: easier financing, simple paperwork, and no corporate fees. Now the portfolio has grown, the properties have gone up in value, and your accountant has started using phrases like "incorporate" and "rollover." A section 85 rollover real estate transfer is the tool that lets you move property into a corporation without triggering the full tax bill on the gain right away.
It's powerful, and it's often misunderstood. A rollover defers tax; it doesn't erase it. It also doesn't fix lender, legal, or ongoing tax issues that come with holding rentals in a company. In some cases, moving property into a corporation makes your tax picture worse, not better.
This guide walks through how section 85 works, which real estate qualifies, the Alberta-specific costs, and the questions to raise with your accountant and lawyer. For the bigger investing picture, see our pillar guide to investment real estate in Edmonton.
Quick answer
Section 85 of the Income Tax Act lets you transfer eligible property, including rental real estate held as capital property, to a taxable Canadian corporation at an agreed value, deferring tax on the accrued gain. You must receive at least one share as part of the consideration and file Form T2057 on time. Real estate held as inventory doesn't qualify. Get professional tax and legal advice before you transfer.
Section 85 Rollover Real Estate Basics: How It Works
Normally, transferring property to your own corporation is treated as a sale at fair market value. If your rental has gone up in value, you'd owe tax on the capital gain, plus potential recapture of capital cost allowance you've claimed.
Section 85 lets you and the corporation jointly elect an "agreed amount" for the transfer. If you elect an amount equal to your tax cost, the gain is deferred. The corporation inherits the lower tax cost, and the deferred gain is realized later when the corporation sells the property or you sell your shares.
The core requirements
• The buyer must be a taxable Canadian corporation.
• You must receive at least one share of the corporation as part of the payment. The Canada Revenue Agency's IC76-19 information circular is clear on this.
• The property must be eligible.
• The agreed amount must fall within the limits set out in the Act, generally between your tax cost and fair market value, with other rules for depreciable property and non-share consideration.
• You file Form T2057 jointly with the corporation.
The filing deadline catches people
The T2057 election is due by the earliest date any party to the transfer must file a tax return for the year of the transfer. Late elections are possible within limits, but penalties apply and can reach $8,000.
Which Real Estate Qualifies for a Section 85 Rollover?
This is where real estate investors need to be careful.
|
Property type |
Eligible for section 85? |
Notes |
|
Long-term rental held as capital property |
Generally yes |
The most common investor use case |
|
Commercial or multi-family building held long term |
Generally yes |
Recapture and land/building split still matter |
|
Land and buildings held for resale (flips, inventory) |
No |
Real property inventory is excluded |
|
Your principal residence |
Technically possible, rarely sensible |
You'd lose the principal residence exemption on future gains |
|
Property owned by a non-resident |
Restrictions apply |
Get specialized advice |
If your activity looks like a business of buying and selling, CRA may treat the properties as inventory. That's a key reason to confirm your property's tax character before planning a rollover. Flippers should also remember the federal residential property flipping rule for homes held less than 365 days.
Why Investors Use a Section 85 Rollover for Real Estate
• Liability and estate planning: Corporate ownership can be part of a broader structure, sometimes combined with a holding company or family trust.
• Bringing in partners: A corporation can make shared ownership cleaner than adding names to title.
• Consolidating a portfolio under one entity for management and reporting.
• Estate freezes: Some families use section 85 with share planning to freeze value for the next generation.
Why It Might Not Make Sense
Holding rental property in a corporation isn't automatically better. Rental income in a Canadian-controlled private corporation is usually treated as passive investment income and taxed at a high upfront corporate rate, with part refunded when dividends are paid. The low small business rate generally doesn't apply to ordinary rentals.
|
Issue |
Personal ownership |
Corporate ownership after section 85 |
|
Tax on rental income |
Your marginal rate |
High passive rate in corp, partial refund on dividends |
|
Principal residence exemption |
Available on your home |
Not available |
|
Financing |
Residential mortgage options |
Often commercial terms, personal guarantees |
|
Ongoing costs |
Minimal |
Annual returns, accounting, legal upkeep |
|
Selling later |
Capital gain to you |
Gain in corp, then extraction to you |
Your accountant will model this before recommending a transfer. Our post on why an Edmonton real estate accountant is worth it covers what to ask.
Alberta-Specific Costs to Budget For
Alberta has one big advantage here: there's no land transfer tax. In Ontario, moving property into a corporation can trigger a large land transfer tax bill. In Alberta, you pay Land Titles registration fees instead, which are calculated on value but are far smaller. Our guide to Alberta's land transfer tax and registration fees breaks down the formula.
Other costs and hurdles include:
• Lender consent. Most mortgages restrict transfers of title. Your lender may require a new mortgage in the corporation's name, possibly at different terms.
• Legal fees for the transfer documents, share issuance, and title registration.
• Accounting fees for valuations, the election, and ongoing corporate returns.
• GST considerations. Transfers of residential rental property generally fall under specific GST rules, but commercial property can be different. Ask your accountant.
• Insurance changes. The named insured must match the owner.
A Simple Illustration
Say you bought a duplex in Bonnie Doon years ago for $400,000 and it's now worth $650,000. Selling it to your corporation at fair market value would trigger a $250,000 capital gain plus any recapture. With a section 85 election at your adjusted cost base, you defer that gain. The corporation now owns a property with a low tax cost, so the deferred gain will be taxed when it sells. Depreciation history, the land and building split, and the mix of shares and debt you take back all affect the numbers. That's why each rollover needs its own calculations.
Frequently Asked Questions
What is a section 85 rollover in real estate?
It's an election under the Income Tax Act that lets you transfer eligible property, like a long-term rental, to a taxable Canadian corporation at an agreed value, deferring tax on the accrued gain.
Does a section 85 rollover real estate transfer eliminate capital gains tax?
No. It defers the tax. The corporation inherits your tax cost, so the gain is taxed later when the corporation sells the property or you dispose of your shares.
Can I use section 85 for a fix-and-flip property?
Generally no. Real property held as inventory is excluded from section 85, and flips are usually inventory.
What is the deadline to file Form T2057?
The election is due by the earliest tax return filing deadline of any party to the transfer for the year the transfer happens. Late filing penalties apply.
Is there land transfer tax when moving a property into a corporation in Alberta?
Alberta has no land transfer tax. You'll pay Land Titles registration fees based on value, which are much smaller than land transfer taxes in provinces like Ontario.
Will my lender allow me to transfer my rental to a corporation?
Most mortgages restrict transfers. Expect to need lender consent or a new mortgage in the corporation's name.
Is holding rental property in a corporation better for taxes?
Not always. Rental income in a corporation is usually taxed as passive investment income at a high upfront rate. Your accountant should model both options for your situation.
Do I need a lawyer and an accountant for a section 85 rollover?
Yes. The tax election, valuation, share structure, and title transfer all need professional work to be done correctly.
Talk to Your Advisors Before You Transfer
Bring your accountant a list of every property, its purchase price, current value, depreciation claimed, and mortgage details. Ask them to model personal vs corporate ownership over your actual holding period, and loop in a lawyer and your lender early. A well-planned section 85 rollover can be a smart step. A rushed one can be expensive. This article is general information, not tax or legal advice.