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?