Can I use a section 85 rollover to defer tax on an asset sale, not just a share sale?

It can apply to a transfer of business assets, not only shares, but only in a specific setting: the rollover under the federal Income Tax Act defers tax when you transfer eligible property — which can include your business's assets — into a corporation in exchange for share consideration in that corporation. What it isn't built for is deferring tax on an ordinary arm's-length asset sale to an outside buyer who is simply paying you cash; that kind of sale doesn't involve you receiving shares back, so there's no rollover mechanism to defer the gain.

Where this genuinely comes up is incorporating a previously unincorporated business, moving assets into a related corporation, or a transaction where part of what a buyer is offering is actually shares of its own corporation rather than pure cash — in that narrower case, the portion of the price paid in shares can potentially qualify for deferral on an election, while any cash or other non-share consideration received above your cost in the assets is still generally taxed immediately.

Because this depends heavily on exactly what the buyer is offering and how the transaction is structured, confirming whether your specific deal actually fits this mechanism, rather than assuming any asset sale qualifies, needs a tax advisor's review.