A Section 85 rollover crypto Canada strategy, one of the more powerful tools in international crypto wealth planning for Canadians, lets a Canadian taxpayer transfer cryptocurrency, which the CRA generally treats as property, to a Canadian corporation at an elected amount in exchange for shares. It defers capital gains tax; it does not eliminate it. The gain stays embedded in the corporation's and taxpayer's cost base, taxable on a later disposition.

What Is a Section 85 Rollover?

Section 85 of the Income Tax Act (Canada) is a tax-deferral mechanism. When a qualifying taxpayer transfers eligible property to a taxable Canadian corporation and both parties file a joint election (Form T2057), the proceeds of disposition for the transferor are set at the elected amount rather than fair market value. This prevents an immediate taxable capital gain from crystallizing at the time of transfer.

The election does not make the gain disappear. The deferred gain is embedded in:

The corporation's adjusted cost base (ACB) of the property (which may be lower than fair market value), and
The taxpayer's ACB in the shares received.

When the corporation eventually sells the asset, or when the taxpayer sells the shares, the deferred gain becomes taxable. Section 85 shifts when the gain is realized, not whether it will be.

Does CRA Treat Cryptocurrency as Eligible Property?

The CRA generally treats cryptocurrency as property for income tax purposes, not as currency. This is documented in CRA guidance (see Sources). Because crypto is property, it can qualify as eligible property for a Section 85 election, subject to specific conditions:

The transferee must be a taxable Canadian corporation.
The property transferred must be eligible under s. 85(1).
The elected amount must fall within the permitted range (generally, between the property's ACB and its fair market value).
Both the transferor and the corporation must file Form T2057 (Election on Disposition of Property by a Taxpayer to a Canadian Corporation) by the applicable deadline.

Timing is critical. The election must be filed by the transferor's tax return due date for the year of transfer (including extensions). Late elections may be accepted by CRA but can attract penalties. Consult a qualified Canadian tax professional before proceeding.

How a Section 85 Rollover Works: Step by Step

Determine fair market value (FMV) of the crypto at the date of transfer. CRA expects a defensible FMV, typically the exchange price on the transfer date.
Agree on the elected amount with the corporation. The elected amount sets your proceeds of disposition. Choosing the ACB of the crypto as the elected amount generally results in no immediate gain recognition.
Receive shares as consideration. The corporation must issue shares (common or preferred) as at least partial consideration. The share value must be consistent with the elected amount to avoid deemed benefit rules under s. 85(1)(e.2).
File Form T2057. Both the transferor (you) and the corporation jointly file the election with CRA. The form captures the elected amount, description of property, and share consideration.
Record the ACB adjustments. The corporation records a low ACB on the crypto (matching the elected amount). The taxpayer records an ACB in the shares received equal to the elected amount.
Future disposition triggers the deferred gain. When the corporation sells the crypto, or when you sell your shares, the embedded gain is reported at that time.

What Are the Permitted Range Limits for the Elected Amount?

The elected amount generally must be set at a value no lower than the lesser of:

The property's FMV, and
The property's ACB (adjusted cost base)

and no higher than the property's FMV at time of transfer.

Electing below ACB creates a loss limitation. Electing above ACB but below FMV defers a portion of the gain. Electing at FMV fully recognizes the gain, effectively the same as an arm's-length sale and defeats the purpose of the election.

Elected Amount	Tax Result
Equal to ACB	Full gain deferral; no immediate tax
Between ACB and FMV	Partial gain recognized immediately; remainder deferred
Equal to FMV	Full gain recognized; no deferral

Illustrative only. Actual tax treatment depends on the specific facts, the nature of the property, and current CRA guidance. Verify with a Canadian tax professional.

Is This a Tax Elimination Strategy?

No. A Section 85 rollover is a deferral, not a forgiveness of tax. The corporation inherits a low ACB in the crypto, meaning a larger gain will be recognized when the corporation eventually disposes of it. Canada's capital gains inclusion rate is currently 50%; a 2024 federal budget proposal to raise it to two-thirds was not enacted, but inclusion-rate rules can change, so confirm the current rate with a Canadian tax professional. The taxpayer's shares in the corporation also carry a low ACB, meaning a future share sale may trigger a significant gain.

Some taxpayers use the rollover in conjunction with the lifetime capital gains exemption (LCGE) or other corporate structures, but those strategies carry separate requirements and risks. None of this is tax advice, qualified Canadian tax counsel is required.

What Are the Key Risks and Limitations?

CRA audit risk on FMV: CRA may challenge the FMV used at transfer, especially for volatile assets like cryptocurrency. Inadequate documentation of the exchange-rate FMV on the transfer date can result in reassessment.
Benefit conferred rules: If shares issued are worth less than the elected amount, CRA may deem a benefit was conferred on a non-arm's-length party.
Thin capitalization and TOSI: Corporate structures involving related parties may attract tax on split income (TOSI) rules or other anti-avoidance provisions.
Provincial considerations: Corporate and personal tax rates vary by province. The effective deferral benefit depends on the gap between personal marginal rate and corporate rate in the relevant province.
Deferral is not free: The corporation must eventually dispose of the asset or wind up. A low-ACB asset inside a corporation can create a larger taxable event than the original personal gain.
Filing deadlines: Missing the T2057 deadline can render the election invalid. Late-filing penalties apply.

Related Questions

Does a Section 85 rollover apply to all types of cryptocurrency?

CRA treats cryptocurrency as property (not currency), so most standard cryptocurrencies can qualify as eligible property under s. 85. However, whether a specific token qualifies, and at what ACB, depends on how it was acquired (mining, purchase, airdrop, fork, staking rewards). Each acquisition event establishes a separate ACB lot. A Canadian tax professional needs to review the full position before a rollover is structured.

Can a non-Canadian resident use a Section 85 rollover?

Section 85 generally requires the transferor to be a taxpayer for Canadian income tax purposes. Non-residents with Canadian-source property may have different obligations (Part XIII or Part I tax) and the rollover may not apply in the same way. Cross-border situations involving Canadian corporations and non-resident transferors require specialized Canadian tax advice.

What is the difference between a Section 85 rollover and simply selling crypto to a corporation?

An arm's-length sale at FMV immediately triggers capital gains tax on any accrued gain. A Section 85 rollover, by contrast, allows the parties to set the proceeds at an elected amount (as low as ACB), deferring the gain into the corporation. The tradeoff is that the corporation inherits a low ACB and will recognize the deferred gain on future disposition. For large positions with significant embedded gains, the deferral can be meaningful, but it requires precise execution and professional oversight.

How does this affect Canadian wealth planning for crypto investors with international ties?

For Canadians with U.S. connections, holding crypto inside a Canadian corporation can create additional complexity. PFIC rules, controlled foreign corporation considerations if the corporation is viewed as foreign from a U.S. perspective, and potential double-taxation issues. International clients with dual tax residency should not proceed with a Section 85 rollover without coordinated Canadian and U.S. tax advice. On the U.S. side, the same families often weigh crypto tax planning for HNW investors and whether crypto should be held personally, in an LLC, or in a trust. DAG Wealth works with international families to coordinate multi-jurisdictional planning, but DAG is not a Canadian-licensed adviser and does not provide Canadian tax or legal advice.

Sources

Canada Revenue Agency, "What are the tax implications of cryptocurrency?", Guide for digital currency: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html (verify current)
Income Tax Act (Canada), RSC 1985, c. 1 (5th Supp.), s. 85. Election on Disposition of Property by a Taxpayer to a Canadian Corporation
Canada Revenue Agency, Form T2057. Election on Disposition of Property by a Taxpayer to a Canadian Corporation: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2057.html (verify current)
CRA Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime, referenced for property classification context
Department of Finance Canada, 2024 Budget, proposed capital gains inclusion-rate increase to two-thirds (not enacted; 50% inclusion rate remains in effect, verify current legislative status)

Compliance Note

This page is for educational purposes only. It does not constitute legal, tax, investment, or financial advice. Section 85 elections involve complex Canadian tax law and require the involvement of a qualified Canadian tax professional (CPA or tax lawyer) and, for cross-border situations, potentially a U.S. tax adviser as well.

Digital Ascension Group (DAG Wealth) is not a Canadian-licensed investment adviser, tax adviser, or legal professional. DAG does not provide Canadian tax advice and cannot assist with Section 85 elections directly. Any international client with Canadian tax exposure should engage Canadian-qualified counsel before implementing any rollover or corporate restructuring strategy.

Nothing on this page should be construed as a guarantee, projection, or representation that any particular tax outcome will be achieved. Tax law changes frequently; all references to specific rates, thresholds, and rules should be independently verified with current CRA guidance and applicable legislation.