Rollover Rule

Note
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The rollover rule allows the settlor to transfer property with no immediate tax incidence. The rule applies to qualifying transfers and qualifying dispositions.

Qualifying transfer

There is no tax incidence (rollover rule) for the settlor of a trust who makes a qualifying transfer of property to:

In this case, the proceeds of disposition for the settlor and the acquisition cost for the trust are deemed equal to the adjusted cost base (ACB) of the property or, if it is depreciable property, to the undepreciated capital cost (UCC) attributable to the property.

For the transfer to be deemed a qualifying transfer, both the trust and the settlor must be resident in Canada at the time of the transfer. In the case of a testamentary spousal trust, the settlor must be resident in Canada immediately before death, and the trust must be resident in Canada immediately after the property in question is indefeasibly vested in it.

In the case of a self-benefit trust, the transfer must not result in a change in the beneficial ownership of the property and, immediately after the transfer, no other person or partnership may have an absolute or contingent right as a beneficiary of the trust.

The settlor of the trust (or his or her legal representative in the case of a testamentary spousal trust) may elect not to apply the rollover rule, provided he or she notifies the Canada Revenue Agency (CRA) of the election beforehand.

Note

The rollover rule applies to transfers of capital property only; it does not apply to transfers of property included in the inventory of a business.

End of note

Qualifying disposition

There is little or no tax incidence (rollover rule) for an individual (referred to as the “transferor”) who transfers property to a trust (referred to as the “assignee”) as part of a qualifying disposition.

A disposition is a qualifying disposition if it does not change the beneficial ownership of the property, and if it meets other conditions, such as the following:

  • the transferor receives no consideration, other than an interest as a beneficiary of the trust; 
  • the assignee is resident in Canada at the time of the transfer; 
  • the transferor and the assignee are one or the other of the following types of trusts and are not subject to deemed sales: 
    • an amateur athlete trust,
    • an employee trust,
    • a master trust,
    • a trust established under: 
      • a registered pension plan (RPP),
      • a pooled registered pension plan (PRPP),
      • a voluntary retirement savings plan (VRSP), 
      • a profit-sharing plan, 
      • a deferred profit-sharing plan (DPSP), 
      • a registered education savings plan (RESP), 
      • a registered disability savings plan (RDSP), 
      • a registered supplementary unemployment benefit plan (RSUBP),
      • a registered retirement savings plan (RRSP), 
      • a registered retirement income fund (RRIF), 
      • an employee benefit plan, 
      • a tax-free savings account (TFSA), 
    • an employee life and health trust,
    • a trust governed by a foreign retirement arrangement, 
    • an insurance segregated fund trust, 
    • a retirement compensation arrangement (RCA) trust, 
    • a religious organization, 
    • a trust all or substantially all of whose property is held for the purpose of providing benefits to individuals, for their current or former office or employment, 
    • a trust governed by an eligible funeral arrangement or a cemetery care trust;
  • the transferor and the assignee are the same type of trust, where the transferor is one of the following types of trusts: 
    • an amateur athlete trust,
    • an employee trust,
    • a master trust,
    • a trust established under: 
      • a profit-sharing plan,
      • a registered education savings plan (RESP),
      • a registered disability savings plan (RDSP),
      • a registered supplementary unemployment benefit plan (RSUBP),
      • a tax-free savings account (TFSA),
    • an employee life and health trust,
    • an insurance segregated fund trust,
    • a religious organization,
    • a trust governed by an eligible funeral arrangement or a cemetery care trust.

If the transfer of property to a trust is considered to be a qualifying disposition, the acquisition cost of the property for the trust is deemed to be equal, as applicable, to the proceeds of disposition determined for the transferor (that is, the cost amount for the transferor immediately before the transfer) or, if the transferor elected to designate, under federal legislation, an amount as proceeds of disposition, the greater of the following amounts:

  • the cost amount for the transferor immediately before the transfer;
  • the amount designated by the transferor in the election made with the Canada Revenue Agency (CRA).

This election is automatically deemed to be made for the purposes of Québec legislation. Therefore, you must send us proof that the election was made with the CRA and written notification no later than the filing deadline for the return or 30 days after the election was made (whichever is later).

Note

The rollover rule does not apply to the transferor if the disposition of property is made in favour of a revocable or blind trust.

End of note

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