T2058 - Election on Disposition of Property by a Partnership to a Taxable Canadian Corporation

The rollover provisions of the Act, under subsection 85, permit a taxpayer to elect to transfer "eligible property" to a taxable Canadian corporation in exchange for consideration that includes at least one share of the corporation. "Eligible property" includes most capital property, Canadian or foreign resource property, eligible capital property and inventory, other than inventory that is real property. Where the taxpayer and the corporation agree upon an amount that does not exceed the fair market value of the property disposed of and is not less than the fair market value of any non-share consideration that is received, the amount agreed upon becomes, subject to certain specific limitations, the taxpayer's proceeds of disposition and the corporation's cost of the property. By choosing an appropriate amount within those limits the property can be transferred on a tax-deferred basis, that is, the corporation assumes the taxpayer's potential income tax liabilities for the property.

Filing requirements

For a transferor that is a partnership, one partner designated by the partnership should file Form T2058. All partners, or a person authorized in writing by the partners to sign for them, has to sign the election form, along with an authorized officer of the transferee. Tthe signature of the designated partner will only be accepted if the partnership provides proof of authority. The partnership has to file the election form separately from any income tax return, at the tax centre where the transferee usually files its income tax return.

The deadline to file forms T2058 is the earliest date on which any of the parties to the election has to file an income tax return for the taxation year in which the transfer occurred.

The parties to an election have to provide all the information required by the forms, obtain the appropriate signatures, and pay any late-filing penalties when filing the forms. All parties should ensure that they file their election on the most recent version of the prescribed form.

Useful links:

Guide RC4022, General Information for GST/HST Registrants
RC4070, Guide for Canadian Small Businesses
Transfer of Property to a Corporation Under Section 85
Transfer of Property to a Corporation under Subsection 85(1)
Winding-up of a Partnership