Can family members elect any price they want on a rollover into a holding company?

The rule: the benefit-conferral override

Paragraph 85(1)(e.2) applies wherever “it is reasonable to regard any part of the excess as a benefit that the taxpayer desired to have conferred on a person related to the taxpayer (other than a corporation that was a wholly owned corporation of the taxpayer immediately after the disposition)”. Where it applies, the elected amount is overridden regardless of what the parties actually agreed on — the family cannot simply choose a low number to shift value to a related shareholder without engaging the rule.

When it changes

The parenthetical carve-out is the whole game: a transfer into a corporation wholly owned by the taxpayer, immediately after the disposition, does not engage paragraph (e.2) at all, even where a related person later benefits indirectly through their own shares in that holdco. The same family plan can trigger the rule or not depending only on whether the related person holds a personal, day-one interest in the transferee corporation.

Where this played out — Case Files

In one estate freeze, an elected amount at cost was overridden the moment part of the value landed on a related shareholder. A companion file runs the same family plan through the wholly owned holdco itself instead, and the rule never engages at all — the two are worth reading together.

Sources

• • Income Tax Act s.85(1)(e.2) — laws-lois.justice.gc.ca.
• • Treadstone Law — section 85 rollover basics for an Ontario business owner — general background on how the election works; it does not address the benefit-conferral override, which is the specific rule here.