A Division 85 rollover allows a taxable person to opt to transfer legitimate property to a taxable Canadian corporation in exchange for consideration for at least one interest in the corporation. Eligible real property includes most capital real property, Canadian or foreign resources, eligible real property and inventory, with the exception of inventory which is real property. If the taxable person and the company agree on an amount that does not exceed the fair value (FMV) of the transferred goods and is not less than the FMV of a non-participation received, the agreed amount becomes the taxable person`s transfer proceeds and the cost of the goods exchanged by the company, subject to certain specific restrictions. By choosing a reasonable amount within these limits, the traded property can be transferred on a deferred tax basis, with the company assuming the potential obligations of the income tax liability for the property traded. In the meantime, under section 85.1, a rollover must allow a taxable person who held shares in an acquired company to make a tax-exempt rollover and, following the acquisition or attempted redemption, the taxable person exchanged those shares for shares of the company purchased by the acquired company. For the rollover to be valid, the taxpayer must hold the shares of the acquired company as capital and the consideration received for these shares must be newly issued shares of the acquiring company.
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