Unlocking Tax Efficiency: The S85 Rollover and its Benefits for Family Businesses

Tax efficiency is a vital consideration for family businesses seeking to optimize their financial strategies. Among the various options available, the S85 Rollover presents an innovative solution that can help family-owned businesses achieve significant tax advantages. This article explores the concept of the S85 Rollover and how it can enhance tax efficiency for family businesses.

Understanding the S85 Rollover

The S85 Rollover is a tax provision designed to facilitate the tax-efficient transfer of assets and businesses from one generation to the next within a family. It allows for the deferral of capital gains tax that would typically arise from the transfer or sale of business assets, providing families with an opportunity to preserve wealth and maintain business continuity.

Working Principle

The S85 Rollover operates on the premise that when a family member sells shares of a qualifying small business corporation (QSBC), capital gains tax can be deferred if certain conditions are met. To qualify for the S85 Rollover, the corporation must be primarily engaged in an active business carried on in Canada, and at least 90% of the fair market value of its assets must be used primarily in the active business.

Benefits for Family Businesses

  • Tax Deferral: The primary advantage of the S85 Rollover is the ability to defer the payment of capital gains tax. By utilizing this provision, family businesses can preserve capital within the business, allowing for reinvestment and growth opportunities.
  • Business Continuity: Family businesses often desire to pass their enterprises down to the next generation. The S85 Rollover enables a seamless transition by reducing the tax burden associated with the transfer, ensuring the continuity and long-term sustainability of the business.
  • Wealth Preservation: By deferring capital gains tax, the S85 Rollover allows family businesses to retain more of their wealth, ultimately enhancing the financial security of the family and providing additional resources for future expansion and investment.
  • Succession Planning: The S85 Rollover provides an effective tool for succession planning. It allows business owners to transfer their shares to family members without triggering immediate tax liabilities, enabling a smoother transition of ownership and management responsibilities.

Considerations and Limitations

It is important to note that the S85 Rollover has specific eligibility criteria and procedural requirements that must be met to qualify for the tax deferral. It is advisable to consult with tax professionals and experts to ensure compliance with all relevant regulations and to maximize the benefits of the provision.

For family businesses seeking tax efficiency and effective succession planning, the S85 Rollover offers a powerful strategy to defer capital gains tax and preserve wealth. By leveraging this provision, family businesses can navigate the complexities of intergenerational transfers, ensuring the continuity and prosperity of their enterprises. As always, seeking guidance from qualified professionals is crucial to fully understand and implement the S85 Rollover in a manner that aligns with individual circumstances and goals.