I am incorporating my business, do I have to file a Section 85 election?
Only if you want the transfer to happen on a deferred basis. Moving assets into a company is a disposition at fair market value unless the election is made, so a business with goodwill, appreciated equipment or real property can produce a tax bill on the day it incorporates. The election is what defers that. It is made jointly by the person transferring the property and the corporation receiving it, and it has to be filed with supporting valuations rather than simply asserted. Where the assets carry no accrued gain there may be nothing to defer, and the transfer can be documented without it.
Who actually signs the election, me or the company?
Both. It is a joint election between the transferor and the corporation, which means the company must exist, be properly constituted and have authorised the transaction before the election can be signed. This trips up owners who incorporate and transfer on the same afternoon. The sequence matters: incorporation, then a transfer agreement recording what is being moved and what is being received in return, then an election that reflects that agreement. An election which does not match the underlying agreement is worse than none at all, because it invites the whole structure to be examined.
Can I roll assets into a Canadian company from abroad?
Assets can be transferred into a Canadian corporation from outside the country, and the Canadian deferral can be available on the transfer. The question that decides whether the exercise is worth doing is what the other country does. A deferral recognised in Canada may not be recognised where the transferor is resident or where the property is situated, and the result is tax in one country on a transaction that is deferred in the other, with no matching credit to relieve it. That question belongs at the start of the planning, before anything is signed.
Do I need a valuation before transferring assets to my corporation?
Yes, and the election is the reason. Elected amounts, not the intentions of the parties, decide the tax result, and those amounts have to sit within limits set by the cost and the value of the property being moved. Value that is asserted rather than supported is the weak point in most files we are asked to review. Goodwill is the usual difficulty, because it is the item with no purchase invoice behind it and the one most likely to be revisited later. Obtain the valuation before the election, not after a query arrives.
What happens if the elected amount turns out to be wrong?
It depends on how the transaction was documented. A transfer agreement that fixes a price with no mechanism to adjust it leaves the parties with whatever that figure produces, including consequences at the shareholder level that nobody intended. Agreements written for this purpose normally include a clause adjusting the consideration if the value is later determined to be different, and the election is drawn to work with it. This is one of the places where paperwork prepared in advance does the real work. There is very little to be done about it afterwards.
Will the US recognise a Canadian rollover into a holding company?
Not automatically, and it is the wrong assumption to start from. Each country decides for itself whether a transfer into a corporation is a taxable event under its own rules, and the two systems do not line up simply because the transaction has one set of documents. For an owner who is resident in, a citizen of, or holding property in the other country, the planning question is what each side will call the transaction and whether tax charged by one can be relieved against the other. Answer that before the structure is chosen, not after.
What is a PFIC, and why do Canadian mutual funds cause trouble for US persons?
A passive foreign investment company is a non-US company that is mostly passive by income or by assets — which describes almost every Canadian mutual fund and ETF. For a US owner the default regime taxes distributions and gains punitively with an interest charge for the years the value built up. Two elections fix it, and both need annual information the fund may not produce for you. Holding the same exposure through US-domiciled funds usually avoids the problem entirely. See PFICs and Canadian mutual funds.
Branch or subsidiary — which should we use to expand?
A branch keeps one taxpayer: results consolidate at home, losses are usable sooner, and the exposure is that the branch is a permanent establishment whose profit the host country taxes, sometimes with a branch tax on repatriation. A subsidiary is a separate taxpayer with limited liability and local rates, at the cost of withholding on dividends home and transfer pricing on everything between them. The deciding facts are usually expected losses, liability and exit plans. See branch against subsidiary.
