What happens if the Section 85 election is filed late?
A late election is not automatically refused, but it is no longer simply a filing. It becomes a request, considered on the facts, and an exposure attaches to making it late. The election has a deadline of its own, and it can fall due while an owner who incorporated early in the year is still thinking about the business rather than about tax. The real risk is not that exposure. It is that without the election the transfer stands as a disposition at value, with tax on gains the owner has not realised in cash.
Is there a penalty for filing the Section 85 election late?
A late election carries an exposure of its own, charged by reference to the form and the delay rather than to the tax, and it can arise whether or not the transfer produced tax to pay. That is separate from anything arising on a return. If the personal return for the year was also filed late with a balance owing, the CRA late-filing penalty applies to it: for the 2025 tax year, 5 per cent of the balance owing plus 1 per cent of that balance for each full month the return is late, to a maximum of 12 months, rising for that same tax year to 10 per cent plus 2 per cent per full month, to a maximum of 20 months, where the CRA had issued a demand to file and had charged a late-filing penalty in any of the three preceding tax years.
Can the CRA refuse to accept a late rollover election?
It can. Acceptance is not a formality, and the material supporting the request does the persuading: what the transaction was, what was valued and by whom, why the election was not made on time, and whether the parties have behaved throughout as though the transfer had taken place on the basis now claimed. Records created at the time carry weight. Records created afterwards to support the request carry much less, and inconsistencies between the corporate books, the financial statements and the returns already filed are the usual reason a request goes badly.
What if I never filed the election at all after incorporating?
Then the transfer stands on its own terms: property moved into the corporation at its value, with any accrued gain realised at that point. The gap usually shows up on a later sale or a financing, when someone asks what the company paid for its assets and the answer in the books matches nothing that was filed. Deal with it as two questions rather than one. What is the correct position on the facts, and is a late election still available and worth requesting on those facts. Answering the second before the first is how these files get worse.
Does a late election change what my company records as cost?
It should, and this is where the practical damage of a late election is done. The elected amounts fix the corporation's cost of the property and the transferor's proceeds, and those figures feed the company's depreciation, its financial statements and the calculation on any later sale. While the election is unresolved the corporate records rest on an assumption. If the assumption is wrong, several years of filings on both sides are wrong with it, which is a far larger exercise than the election itself.
Should I fix this before the company is sold or after?
Before, in almost every case. A purchaser's advisers will ask what the corporation paid for its assets and will want to see the basis, and an unresolved election is a question you end up answering under time pressure with the price already agreed. Dealt with in advance, the same facts are assembled calmly, the valuation material is obtained while the people who prepared it are still reachable, and the answer given in due diligence is the one already on the file. Nothing about the underlying position improves by waiting.
Are foreign trusts taxable in Canada?
They can be. Canada's deemed-resident-trust rules can pull a non-resident trust into the Canadian tax system where there is a resident contributor or, in some cases, a resident beneficiary — taxing it as though it were resident here. Separate reporting applies to transfers or loans to a non-resident trust and to distributions and debts from one. The planning point is that contributing to an offshore trust from Canada rarely achieves what the brochure suggests. See non-resident trusts.
What is a permanent establishment, and how easily do we create one?
A taxable presence in another country under the treaty — typically a fixed place of business such as an office, branch, factory or workshop, or a dependent agent habitually concluding contracts on your behalf. Some treaties add a services test measured in days. Purely preparatory or auxiliary activity is excluded, but that carve-out is narrower than it sounds: one senior employee working from home in the other country, with authority, has been enough. See business profits and permanent establishment.
