What are the tax consequences of transferring my investment property into a corporation?

Transferring real property you own personally into a corporation you control is a disposition for tax purposes. Under the federal Income Tax Act, the transfer is treated as a sale at fair market value, which means any accrued capital gain is triggered at the time of the transfer. The corporation acquires the property at its fair market value, and you are taxed on the gain personally in the year of the transfer.

There is a mechanism that can defer this gain: a section 85 rollover. Under section 85 of the Income Tax Act, you can elect to transfer eligible property to a taxable Canadian corporation at an elected transfer price rather than at fair market value, deferring the capital gain until a future disposition. The section 85 election is available for eligible depreciable property and capital property, but certain restrictions apply — the elected amount cannot be below the fair market value of any non-share consideration received.

Transferring real estate to a corporation also has implications beyond income tax: land transfer tax is generally payable on the transfer, HST may apply if the property is commercial, and there may be mortgage-related issues if the property is subject to financing. The decision to incorporate real estate holdings is complex and depends heavily on your overall tax situation, estate plan, and whether the anticipated benefits justify the transaction costs.