A rollover only defers tax on the share portion of what you receive. The cash portion, called boot, has its own floor buried inside the same section.
Short answer
No, not automatically. Section 85(1) lets you elect a transfer price, but the elected amount cannot be set below a floor tied to the property’s own cost — the lesser of cost and fair market value for most property, or the class’s undepreciated capital cost for depreciable property — so any non-share consideration above that floor is deemed proceeds and taxed immediately, whatever the parties elected.
On a disposition of ordinary capital property, section 85(1)(c.1) overrides a low elected amount wherever it is “less than the lesser of (i) the fair market value of the property at the time of the disposition, and (ii) the cost amount to the taxpayer of the property at the time of the disposition”. Whatever cash or debt the seller took back above that floor is deemed proceeds of disposition, and a capital gain is realized on it immediately — the share portion still rolls, the cash portion does not.
The parallel floor for depreciable property, in paragraph 85(1)(e), is not cost — it is “the least of (i) the undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition, (ii) the cost to the taxpayer of the property, and (iii) the fair market value of the property at the time of the disposition”. Because that floor is pinned to the class’s undepreciated capital cost rather than to the individual asset’s cost, cash boot on equipment or other depreciable property can push the class negative and trigger fully taxable recapture under section 13(1) rather than the half-taxed capital gain a share sale would produce on the same dollar amount.
In one file, a seller who rolled shares into the buyer’s acquisition company and took most of the price in cash found that cash alone crystallized the gain. A companion file rolls depreciable equipment on the same facts and gets recapture instead, because the floor is different. A third, on a buyer paying a premium for stepped-up equipment, shows the same floor working in the buyer’s direction.
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