Our new Section 85 Navigator

August 30, 2017 | by Mat Armstrong

We are excited to introduce Tax Foresight’s new navigator: T2057: Section 85 Election Eligibility. The T2057 navigator assesses whether a disposition of property by a taxpayer to a taxable Canadian corporation is eligible for an election under section 85 of the Income Tax Act.

Determining the eligibility of a T2057 election


For a T2057 election to be eligible, a number of criteria must be satisfied with regard to the transferor, the transaction structure, the transferee, and the transferred property.


A transferor must be either a non-dissolved corporation or a taxpayer as defined in the Income Tax Act. The rule regarding non-dissolved corporations is not included in the Income Tax Act, but is established through case law (see S. Cunard Co. v. Canada (Attorney General), [2012] 6 CTC 1 (FC)).

Transaction Structure

The rules governing transaction structure can be found throughout the Income Tax Act. Of course, the transaction must involve filling out a valid T2057 form, but the transaction must also involve the transfer of at least one share of the transferee’s capital stock in exchange for the property being transferred. Further, subsection 13(21.2) of the Income Tax Act, regarding loss on certain transfers, cannot apply to the transaction at issue. Tax Foresight links you directly to subsection 13(21.2) so you can determine whether this disqualifying factor applies to the transfer.


The transferee involved in the transaction must be a taxable Canadian corporation to be eligible for a T2057 election. If the transferee is not a Canadian corporation, a form other than T2057 governs the election. If the corporation is not taxable, the transaction is not eligible for a T2057 election. However, the Income Tax Act does allow for corporations that are tax-exempt under paragraph 149(1)(t) to avoid disqualification for their tax exemption.


Subsection 85(1.1) of the Income Tax Act outlines the types of property that are eligible for a T2057 election if the first three sets of criteria are satisfied. Some eligible types of property are straightforward; for example, a Canadian resource property is eligible without any further qualifications. Other properties, however, require rigorous analysis and research to determine their eligibility; for example, a capital property that is owned by a non-resident has several factors that might disqualify the transfer from being eligible for a T2057 election. There are many paths to eligibility and ineligibility; Tax Foresight helps you find which path you’re on while explaining and citing the relevant legal standards.

T2057: Section 85 Election Eligibility Research
  • Determining the eligibility of a T2057 election can take over 20 separate factors into consideration from more than 6 different sections of the Income Tax Act.
  • Not all of the relevant criteria for a T2057 election are laid out in the Income Tax Act; the rule regarding the ineligibility of dissolved corporations comes from Canadian case law that Tax Foresightfinds and includes.
  • The exception for paragraph 149(1)(t) comes from subsection 89(1), which stipulates the definition of a taxable Canadian corporation. Tax Foresightlinks you to these important sections and keeps track of statutory revisions—such as the repeal of paragraph 149(1)(t) effective 2019.

Want to make sure you are considering all the new statutory revisions when you give your advice? Tax Foresight reflects the newest editions of the law to ensure that users are up to date with the latest legal standards.

Tags: Tax TFSA CRA


Subscribe to our newsletter