Canadaian version of a 1031 exchange?
- Thread starter MattReno
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Its callled rolling (via section 85 of the tax act) and it can be done between related entities i.e. you delay tax payments.
It does NOT exist in Canada between unrelated firms.
However, you can sell via a long term lease, a RTO ( rent to own) or with a VTB ie the sale is extended over a period of time and as such the taxes due are delayed.
It does NOT exist in Canada between unrelated firms.
However, you can sell via a long term lease, a RTO ( rent to own) or with a VTB ie the sale is extended over a period of time and as such the taxes due are delayed.
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Can you please go into a bit more details about a related vs a non-related entity?
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Check any of these links on section 85 rollover provisions in Canadian tax act https://www.google.ca/search?q=cra+tax+rollover
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While not exactly what I was looking for, this is an excellent bit of information thanks for pointing me in the right direction!!
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Do you have personal experience with this? I am looking at buying/long term leasing a business and I’m wondering if this could be used by a partner and I to roll the business into a corporate position so we can avoid the tax burden on sale and also structure our pay outs in lower taxed dividends
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Since a 1031 dies not exist in Canada the section 85 rollover is merely designed to roll a personal asset into a corporation you own ( or your spouse ) or vice versa.
The seller will have to pay taxes on his/her gain to you ( assuming not related ).
The other three options were outlined above ( lease, RTO or VTB). A forth option is to acquire the shares of the existing business ( i.e. not an asset sale) and thus assume the business liabilities incl tax liabilities at a lower price. For that you need tax advisors telling you what that tax liability is.
The seller will have to pay taxes on his/her gain to you ( assuming not related ).
The other three options were outlined above ( lease, RTO or VTB). A forth option is to acquire the shares of the existing business ( i.e. not an asset sale) and thus assume the business liabilities incl tax liabilities at a lower price. For that you need tax advisors telling you what that tax liability is.
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@ThomasBeyer when using this strategy, do you (1) sell shares or (2) transfer assets to subsidiary, then sell that subsidiary?
(1) In the case of the share sale, you end up with a capital gain on the ACB of the shares.
(2) If transfer of real estate is made under subsection 85(1), then land and property is transferred on a tax-deferred basis. The subsidiary inherits the ACB of land and UCC of depreciable property. But, you end up with a capital gain tax at the corporate level to the parent, then a withholding tax on dividend for the final distribution.
Obviously, partly a math question (we are working through one now). But which route do you prefer?
(1) In the case of the share sale, you end up with a capital gain on the ACB of the shares.
(2) If transfer of real estate is made under subsection 85(1), then land and property is transferred on a tax-deferred basis. The subsidiary inherits the ACB of land and UCC of depreciable property. But, you end up with a capital gain tax at the corporate level to the parent, then a withholding tax on dividend for the final distribution.
Obviously, partly a math question (we are working through one now). But which route do you prefer?
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Indeed it is a math question, but not only of the seller’s tax situation, but also of the subsidiary’s and the buyer’s, both today and in the future, and a function of the actual purchase price, i.e. depending on the taxes payable of three entities today and in a few years.
As such the answer differs and needs to be discussed with a tax expert using prudent analysis and even more prudent future assumptions.
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Yes, as we have indeed discovered. Thank God for tax accountants.
Have you ever looked deeply into hunting for corporations that investors need to wind up and want to sell shares / corp to lower their tax bill? On the asset level, you have a trailing liability as your cost basis for the property is near zero (capital gains) and lose the depreciation shield annually. But on an income basis and long-term hold basis it is attractive, especially if you can value-add and cash out to some degree on a refinancing. Such is the play we are investigating this week. Looks promising.
Have you ever looked deeply into hunting for corporations that investors need to wind up and want to sell shares / corp to lower their tax bill? On the asset level, you have a trailing liability as your cost basis for the property is near zero (capital gains) and lose the depreciation shield annually. But on an income basis and long-term hold basis it is attractive, especially if you can value-add and cash out to some degree on a refinancing. Such is the play we are investigating this week. Looks promising.