Agreement for the Sale and Rollover of Shares

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Introduction

This contract combines the sale and the rollover of shares. The parties to this contract, in order to defer the tax consequences related to the transfer of property in exchange for shares, elect to have subsection 85 (1) of the federal law (Income Tax Act) and section 518 of the provincial Law (Taxation Act) apply to the transaction. These sections are intended primarily to allow the transfer of assets to a company or corporation in exchange for shares, by allowing the deferral or all or part of the tax consequences usually associated with this type of sale. This is useful, among others, when establishing a holding company or corporation for a taxpayer.

Description

The Agreement for the Sale and Rollover of Shares is the legal instrument by which a taxpayer, referred to as the VENDOR, sells shares he own to a corporation he controls, called the PURCHASER. This transfer may trigger a taxable capital gain when the proceeds of disposition of the shares is higher than the cost of acquiring them. The taxation of such a gain can be problematic if the consideration received for the sale of such share does not permit the payment of the tax bill relating thereto.

Use

We recommend the use of this agreement when a transfer of shares occurs between a taxpayer and a corporation controlled by him and when the proceeds from the sale of such shares is greater than their book value. In a rollover agreement the parties intend to avoid penalties to the vendor for the reorganization of its internal structure. Thus, under certain circumstances, the law allows you to delay the payment of any tax so payable.

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