Understanding the Section 85 Rollover

  • June 15, 2023
  • Fayme K. Hodal


Relatively speaking, section 85 is not new to Canada’s Income Tax Act.  Even so, as of the date of this writing, section 85 has been discussed, at varying depths, in a mere 314 court decisions; the number of decisions suggests that, once understood, it is likely one of the less obscure sections in the Act.  To this end, as a technically operative section, understanding what is informally known as the section 85 rollover is better done as a disciplined and systematic exercise. 

This paper covers, at a higher level, what the section 85 rollover is, and how it works both purposefully and in practical application.  To aid in understanding the section, in addition to a discussion from and about the legal perspectives and implications, this paper also covers the steps a taxpayer must take in order to make an election pursuant to section 85, and what parameters such an election must adhere to.  For fulsomeness, this paper also briefly covers some of the more frequently encountered issues taxpayers may want be aware of in the course of making an election pursuant to section 85.

Noting that the Act provides for similar, although slightly differing rules for rollovers in the partnership context, the focus of this paper is limited to rollovers as they relate to corporations.