I see this happen constantly. An investor buys their first few doors in their personal name. They build serious equity. Then the lightbulb goes on: “I need to protect myself. I need a corporation.”
Smart move.
Except when they call their accountant to transfer those properties into their shiny new Canadian corporation, they get hit with a nasty surprise. The Canada Revenue Agency (CRA) views that transfer as a sale. You owe capital gains tax on all the appreciation.
Even though you didn’t sell a thing. Even though no cash hit your bank account.
That is a portfolio-killing mistake. Let me show you how to do it the right way and skip that massive, unnecessary tax bill.
Why Bother Moving Your Properties to a Corp?
Before we get into the “how,” let’s lock down the “why.” You do not set up a corporation just to sound official. You do it to build a fortress around your wealth.
1. Asset Protection (The Non-Negotiable) When you own rentals personally, you play with fire. A slip-and-fall lawsuit on an icy driveway at your duplex comes directly after your personal assets. Your family home. Your savings. Your car. Everything is exposed. A corporation builds a concrete wall between your business and your personal life. If something goes wrong with a property inside the corp, the liability stops at the corporate level.
2. Breaking Through the Financing Wall Ask any serious Canadian investor about the “five-property wall.” When you hold properties personally, banks eventually cut you off. Your debt-to-income ratio maxes out. A corporation forces you to operate like a pro. You keep separate bank accounts, clean books, and clear financial records. This allows you to graduate to commercial lending and DSCR (Debt Service Coverage Ratio) loans, where lenders look at the property’s cash flow rather than your personal T4 income.
3. Succession and Estate Planning Want to pass your properties to your kids or bring on a joint venture partner? Transferring shares in a corporation takes minutes. Carving up land titles and dealing with probate taxes takes months and costs a fortune. A corporation gives you a clean, structured way to manage your legacy.
| Benefit | Personal Ownership | Corporate Ownership |
|---|---|---|
| Liability | Your personal assets are 100% exposed | Liability stops at the corporate assets |
| Financing | Banks cut you off after 4-5 properties | Opens the door to commercial/DSCR loans |
| Operations | Finances get tangled and messy | Clean, separate, and professional |
| Succession | Brutal probate taxes and legal fees | Simple, fast transfer of shares |
The Tax Trap That Catches Almost Everyone
Here is where investors get burned.
Let’s say you bought a duplex in Calgary a few years ago for $500,000. You did some renovations, placed great tenants, and forced the appreciation. Today, an appraiser values it at $850,000.
That is $350,000 in equity growth. Awesome.
Now you decide to move it into your new corporation. If you just “sell” it to your corp for its fair market value of $850,000, the CRA demands their cut. They say, “Great job, you just triggered a $350,000 capital gain.”
With Canada’s recent changes to the capital gains inclusion rate (pushing it to 66.67% for corporations and high personal gains), that tax bill destroys your liquidity. You owe tens of thousands of dollars, but you have zero cash from the “sale” to pay for it.
“Well,” you say, “I’ll just sell it to my corp for my original $500,000 purchase price.”
Wrong. The CRA strictly enforces rules on related-party transactions. You must transfer assets to your corporation at Fair Market Value (FMV).
So, do you have to choose between asset protection and a crippling tax bill? No. You just have to know the rules of the game.
How to Legally Defer the Tax Bill (The “Section 85 Rollover”)
Here in Canada, the Income Tax Act gives us a powerful tool specifically for this situation. It is called a Section 85 Rollover.
Think of it as hitting the “pause” button on your tax bill.
Instead of a traditional sale, you perform a specialized transfer. You transfer the property into your corporation in exchange for shares in that corporation.
Because you simply swap one asset (the property) for another (shares of equal value), the CRA allows you to “elect” a transfer price. You choose a price anywhere between the property’s original cost (its Adjusted Cost Base, or ACB) and its current Fair Market Value.
To defer all the tax, you elect to transfer the property at your original cost.
Here is exactly how the numbers play out:
- You transfer your $850,000 duplex to your corporation.
- You and your accountant file a T2057 form with the CRA, electing a transfer price of $500,000 (your original cost).
- The corporation issues you shares valued at $850,000.
- Result: Your capital gain is $0. The tax is completely deferred.
The key word here is deferral, not elimination. The corporation now holds the property with your original cost basis of $500,000. When the corp eventually sells that property to a third party for $1,000,000 down the road, the corp pays tax on the full gain.
But you just bought yourself years—maybe decades—of tax-free growth. You keep your capital working for you today instead of handing it to the government.
The Hidden Trap: Land Transfer Tax
I need to warn you about a massive blind spot. Section 85 stops the CRA from taking your income tax. It does not stop your province from taking Land Transfer Tax (LTT).
If you transfer a property in Ontario or British Columbia into a corporation, the province treats it as a sale for land transfer purposes. You pay LTT based on the fair market value or the outstanding mortgage balance. On an $850,000 property in Toronto, that means cutting a cheque for over $25,000 in municipal and provincial land transfer taxes.
Factor this into your math before you make a move. In some provinces, the asset protection justifies the LTT hit. In others, you need to weigh the costs carefully.
Financing: The Elephant in the Room
You also have to deal with your lender. Most personal mortgages contain a “due-on-sale” clause. When you transfer the title to your corporation, you technically trigger a sale. This gives the lender the right to call your loan due immediately.
Do not try to sneak this past your bank. They find out when the name on the property insurance changes.
You have two options:
- Ask for an assumption: Some lenders allow your corporation to assume the personal mortgage, provided you sign a personal guarantee.
- Refinance: With the Bank of Canada rate sitting in the 3% to 4% range right now, many investors use this transfer as an opportunity to refinance into a commercial or corporate mortgage.
Talk to your mortgage broker before you sign any transfer paperwork. Get your financing lined up first.
The Non-Negotiable Checklist for a Tax-Free Transfer
A Section 85 Rollover is a formal legal and tax procedure. Miss a single step, and the CRA invalidates the whole thing.
Do this. Don’t skip a step.
1. Get an AACI Professional Appraisal. You need the precise Fair Market Value on the exact date of transfer. Do not guess. Do not ask a realtor for a quick letter of opinion. Hire a designated appraiser (AACI). This appraisal is your bulletproof shield if the CRA ever audits the value of the shares you received.
2. Incorporate First. The legal entity must exist before you transfer the property. Set up your corporation, establish your share classes, and open your corporate bank accounts.
3. Perfect the Paperwork. You need a mountain of exact documentation:
- A formal Transfer Agreement between you and the corporation.
- The official T2057 Election Form, filed on time with the CRA.
- Corporate resolutions authorizing the transaction.
- Updated share registers showing you as the owner of the new shares.
4. Exchange for Shares. You must receive shares in the corporation as part of the deal. You can receive a mix of shares and assumed debt (like the corp taking over your mortgage), but the structure must perfectly align with the tax code to maintain the deferral.
Don’t DIY This: Building Your Pro Team
Trying to execute a Section 85 Rollover yourself to save a few thousand dollars is a fool’s errand. The cost of a botched transfer is astronomical.
You need two specific pros in your corner:
- A Real Estate Accountant (CPA): You need an accountant who lives and breathes Canadian real estate. They structure the Section 85 election, prepare the T2057 form, and ensure your Adjusted Cost Base calculations are flawless.
- A Real Estate Lawyer: Your lawyer sets up the corporation, drafts the transfer agreement, registers the land title change, and ensures the legal structure matches the tax strategy.
Force them to talk to each other. Your lawyer and your accountant must work from the exact same playbook.
Frequently Asked Questions
Does a Section 85 Rollover completely eliminate capital gains tax?
What if I made major renovations to the property?
Do I really need a professional appraisal?
Is a corporation always the best structure for Canadian investors?
Moving properties into a corp triggers that due-on-sale clause in your mortgage — before you file any transfer paperwork, book a free strategy call with LendCity and we’ll show you exactly how to restructure your financing so your lender doesn’t call the loan due.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult a licensed mortgage professional before making any financing decisions.
Written by
LendCity
Published
February 24, 2026
Reading time
8 min read
Adjusted Cost Base
The original purchase price of a property plus qualifying capital improvements and acquisition costs, minus any CCA claimed. The adjusted cost base is subtracted from the sale price to determine the taxable capital gain.
ADU
Accessory Dwelling Unit - a secondary residential unit on a single-family property, such as a basement suite, laneway house, garden suite, or in-law suite. ADUs increase rental income and property value while leveraging existing land and infrastructure.
Appraisal
A professional assessment of a property's market value, required by lenders to ensure the property is worth the loan amount.
Appreciation
The increase in a property's value over time, which builds equity and wealth for the owner through market growth or forced improvements.
ARV
After Repair Value - the estimated market value of a property after all renovations and improvements are completed. Calculated by comparing to recently sold comparable properties in the area that are in updated condition. ARV is the foundation of the 70% rule and critical for BRRRR and fix-and-flip strategies.
Bank of Canada
Canada's central bank that sets the overnight lending rate, which influences prime rates and mortgage costs across the country. Rate decisions directly impact variable mortgage rates and overall borrowing costs for real estate investors.
Capital Gains Tax
Tax owed on the profit from selling an investment property, calculated as the difference between the sale price and the adjusted cost base. In Canada, 50% of capital gains are included in taxable income, though recent changes have increased the inclusion rate for amounts over $250,000.
Cash Flow
The money left over after collecting rent and paying all expenses including mortgage, taxes, insurance, maintenance, and property management.
Commercial Lending
Financing for commercial real estate or business purposes, typically qualified based on property income (NOI) rather than personal income. Includes mortgages for multifamily buildings (5+ units), retail, office, and industrial properties.
Coverage Ratio
A measure of a property's ability to cover its debt payments, typically referring to DSCR. Commercial lenders often require a minimum of 1.2, meaning the property's net operating income exceeds debt payments by at least 20%.
Hover over terms to see definitions. View the full glossary for all terms.