Changing of business & representing clients

@johanus @grangers2016

Thanks for confirming. I am hoping to do it similarly.

In the meantime, how did you deal with it in TaxCycle? You can enter only one EFILE code and one BN (in the Authorization settings). If I update the BN to reflect my corp, I will have to update the EFILE code to match, correct? Then, if I am working on a T1 (for example) where the client had authorized my prop BN, I won’t be able to get AFR data, or EFILE, etc. unless I get a new AuthRep signed, or change the settings back to the old BN and EFILE code.

For clients where I’ve started their work in my prop, I think I should finish it through my prop, particularly if I’ve already billed them and my invoice shows the prop GST number.

I suppose I could set up one computer with the prop credentials in TaxCycle and another with the corp credentials…

In TaxCyle I entered the new BN for Authorization in the options profile. Your repID would not change.

For EFILE code I am assuming you mean the EFILE number, that would be the new one if you got a new one (I know it took me a few years to get on that, but didn’t seem to cause an issue).

Since when you log in to Rep a Client it with your RepID, and since you add the new business to that RepID, you have access to anyone who authorizes up under each BN. I had both my Sole Prop, an old Corp that I was in a partnership in, plus my new Corp for years. This was since 2011, I only recently cleaned it all up and now only show my one active Corp as a business.

I think you are making more out of this than needed. I just changed my TC BN and EFILE number and continued on. Any new authorizations were with the new BN and old ones were with old BN. A tip is to make sure you use the Cancel all prior authorizations box on the AuthRep, or you will end up having two authorizations for each and end up having to delete the old BN auth. You can log into Rep a client to see who’s authorized you under review and update, select your Business you are checking, such as your old BN. You’ll see as time goes on and you get new authorization that you’ll have less clients who’ve authorized the old BN.

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What @grangers2016 said. I did exactly the same.

So, you were able to EFILE using the old EFILE number registered to your prop, even though you cancelled the client authorizations for the prop? Wow. I didn’t expect that would have worked. I’ll try it and see if it still works that way.

Thanks for your explanation, and the reminder re: cancelling prior authorizations - I have run into that problem before - when I started my own firm and MNP hadn’t yet disassociated my access under their firm.

Haven’t had an opportunity to get any clients authorized under the new corp BN yet, but I got an error trying to EFILE a T2 for an existing client using the new BN and EFILE number - something like “your EFILE number has not been authorized for this taxpayer”
Had to switch back to using the old EFILE number and password.

I didn’t use the old Efile number, I updated that to the new one. Authorization is not linked to Efile number.

Did this a few years ago.

You need a new EFILE number as it is now the corporation who is efiling, not you personally. I would start the process NOW, because you are going to lose the personal EFILE number by January. The CRA does not like multiple EFILE numbers tied to one person, so they will not be happy to renew the old number. The new EFILE number will be tied to the corporation and use the BN of the corporation for the AuthReps.

You need to set up your corporation through MyBusinessAccount, then link yourself and all your employees to the corporation through RepAClient.

As mentioned by @johanus , it is easier as you file each client, you also get an authrep signed under the new corporation. You will find that immediately after you file the new AuthRep, you can no longer use AFR for that taxpayer. As you discover these, go into the administration and remove the old authrep through the online system. Then, when you only have one authorization for the taxpayer, you can then complete the AFR. This may mean that you’d prefer to do this as a bulk upload one or two months later. (I didn’t and just removed the extra authorization when discovered.)

In regards to your question @Nezzer about having only one efile code and BN, yes that is true, BUT YOU CAN HAVE MULTIPLE PROFILES, each with different efile codes and BNs. But you can use AFR even if TaxCycle is using the new corporation credentials. That is because the authorization is tied to you and not to TaxCycle. (Unlike Quebec’s TDD system.)

Hope that helps!

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That is what I had done already. But, it seems CRA won’t let me file anything with the new EFILE number (for the corporation). Perhaps because the old EFILE number still exists? I guess I’ll call the EFILE help desk to get this straightened out.

Awesome idea! Thanks Tim!

Have the corporation been registered with a valid EFILE number and now is authorized to transmit?

Remember that the authorization will arrive about a month after your request the number.

Oh! Forgot about that. I went through the registration, got the number and password, and expected it to be valid immediately.

I called CRA when I incorporated last summer and was told to just leave the proprietorship BN active. No new E-file number required either as it is is tied to the prop BN.

So far no issues, though it does feel “wrong” to be signing them up to a what is essentially a dormant BN.

You need a new efile number because your T183 forms are being printed with a corporate name, which does not match the BN to which the efile number is tied to. I think that when you called the CRA Efile Help Desk, you were given the wrong information or the agent mis-understood what you were asking.

Generally, you need to keep the old Efile number active for about six weeks until the new corporate Efile number is approved. Then you switch things over.

Note that you will probably also need subsection 85(1) election to transfer the goodwill from the business to the corporation with the attendant filing with the CRA of the required paperwork.

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I got a call from the CRA EFILE helpdesk on Friday. They wanted to confirm that my application for a new EFILE number was due to the incorporation of my business. Then they immediately activated the new EFILE number and deactivated the old EFILE number. They don’t want any one business to have more than one EFILE number.

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Not sure if that’s a good idea. Wouldn’t the critical factor be the valuation of the goodwill? Given the non-arms length relationship, how would you prove the FMV?

You can use one of three values for the transfer. Cost, valuation, or something in between. Also, must be a minimum of $1.

Cost is nil, since goodwill is your own labour, which is not permitted. And is not permitted to be nil.

Since valuation is unknown, the value for the election is clearly obvious, and consequently not subject to dispute by the CRA, since it can’t be reduced any further.

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Sorry, Tim, I’m confused. If you can’t gain anything by rolling it into the corp, why bother with a section 85 election?

If you later sell the corporation, it ensures that the goodwill is entirely the property of the corporation.

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Hmm. Doesn’t make sense to me.

Legally, if I sell the Goodwill I’ve built up, that will be specified in the sale agreement, so why would I need it to show up on the balance sheet?

For tax purposes, if it’s an asset sale, the buyer will have to create Goodwill on his own balance sheet. If it’s a share sale, the Goodwill CAN’T be recorded on the company balance sheet. What difference does it make whether I had $1 of Goodwill on MY balance sheet? I still pay tax on the sale of the shares (ignoring the CGD, for the moment), or my corp pays tax on the sale of the asset. The $1 difference is negligible.

I think what he is saying is that the main thing of value in a tax practice is the client list (the goodwill). If you don’t show it transferred to the corp then you could argue that you personally still own the goodwill, which may or not be a concern to you. but if you don’t and you end up selling the shares of the corp without the goodwill value the disposal of the goodwill personally would be taxable as opposed to being included with the shares and an exempt gain.

If you sold it to the corp for a dollar you could just do a bill of sale but rollover would be better.

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Thanks @jimt but I still don’t think it matters. If I do up a bill of sale (or a S85), to sell “goodwill” from my proprietorship to my corporation, that doesn’t necessarily mean the corporation will own the client list or ALL the goodwill, etc. The proprietorship could still “own” some of it (or most of it). There is no evidence to prove WHAT was sold unless there is a lot of detail on the bill of sale or in a legal agreement.

I can’t see any reason to go through the trouble of filing a T2057. Even if CRA contests that the goodwill was property of the corporation, would a T2057 prove otherwise?

On the other hand, it maybe a good idea to get a notarized statement, dated as of the incorporation date, saying that any and all intangible assets (goodwill, rights, licenses, etc) have been transferred to the corporation. And, perhaps such a thing would require consideration of $1 to make it legal?