What is Form T2057, Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation?
Form T2057 allows you to transfer property that you own to a taxable Canadian corporation. If you and a corporation make a T2507 election (that is, you both agree to the transfer) the corporation must offer you shares (or a fraction of a share) of that corporation as consideration for the property. In addition, you must transfer the property to the corporation at fair market value (FMV), unlike when you transfer property to a partnership. If you are given too much share in the corporation, above the fair market price of the property, the excess amount must be transferred back.
The disposition of property is covered under the Income Tax Act in sections 85. It must be made from a taxpayer to a taxable Canadian corporation, also known as a Section 85 rollover.
Why Might You Use Form T2057?
Transferring property to a corporation through a section 85 election can have income tax benefits for the individual as the tax obligations of that property become the obligations of the corporation. However, it also has drawbacks and therefore must be considered carefully.
What Property Can I Transfer with Form T2057?
Form T2057 is used when you are transferring several different kinds of property:
- Capital property excluding depreciable property: Capital property is property that could create gains or losses when you dispose of it. Non-depreciable capital property could be land.
- Depreciable property: Depreciable property could include a building or its major components, electronic equipment, motor vehicles, franchises, concessions or licenses etc.
- Eligible property: Eligible capital property does not physically exist but confers an economic benefit. Examples include trademarks, goodwill and some patents.
- Inventory excluding real property: Real property is land and things affixed to land, so they are not included in this category. Other inventory refers to a good or material.
- Resource property: Resource property is a good that allows you to take advantage of a resource system. This might include mining rights or fishing grounds.
- Security or debt obligation: Only financial institutions can receive security or debt obligations. This may include bonds and stocks made up of debt obligations.
- Capital property that is real property owned by a non-resident person: This category might include a plot of land owned by someone who is not a resident of Canada.
- AgriInvest fund no. 2: An AgriInvest account is an agricultural savings account that allows farms to manage small losses.
Remember that the cost of the properties must be honestly assessed, and you must receive shares or fractions of share considerations that do not exceed the fair market value.
When Do I Need to File Form T2057?
If you intend to transfer property, you need to file form T2057 before you need to submit your taxes for that tax return for the year. Unlike many other tax forms, Form T2057 must be sent to the tax centre of the transferee (the corporation) separate from any other application or form.
Is There a Penalty for Late Filing?
If you attempt to file a Disposition of Property by a Taxpayer to a Taxable Canadian Corporation after the individual’s taxes are due, you will be penalized by having to pay an estimate on the property. You will also need to include an explanation justifying the reason for your delay, and your filing can be denied by the minister. After three years, this form cannot be filed, but a previous T2057 can be amended. You will still need to include the reasons for amending.
How Can I Complete Form T2057?
In order to complete form T2057, you and the corporation will need to include a lot of information including:
- Taxpayer’s personal information: Including social insurance number, address, tax year and any co-owners of the property.
- Property to be transferred: Including the type of property, the fair market value and the agreed amount, among other things.
- Shares: Including which share relates to which property, the number and class of shares, the redemption value per share, whether the share is voting or non-voting and if the shares are redeemable at the holder’s option.
Other information you will need to disclose on the form includes if there is a written agreement relating to the transfer if someone else owns the property (in which case a second T2057 must be submitted), if a T2076 has been filed for the individual, and other relevant information.