Hi all. I have a client who ran a small excavating business. He is now in a position to close his business. His wife has reported the farming income on her return from inception. All his assets will be used in the farm so my question is “can his assets be transferred to the farm at it’s ACB”?
No. All such transfers must be effected at FMV. If the value is significant, he should be prepared to prove the valuation to CRA. If the total value of all assets is not significant (i.e. old trucks and tractors that are not worth much), CRA won’t waste time/resources investigating it - then he could probably get away without obtaining proper valuations.
Thanks for the response. I kind of thought that would be how it goes. Making him a partner on the farm (in reality should have been from day one) would likely have issues as well. Thanks again!
If the reality has changed - i.e. he has retired from excavating and now has become involved on the farm - that is entirely legitimate. CRA may contact them about the change on their taxes, but it would probably be a quick phone call - a simple verbal answer should suffice.
That’s a thought although they are both HST registrants and I’m not sure how that goes on that end. If I close out his account and make him a partner on the farm, then do I have to change the HST?
If he becomes a partner on the farm, the farm will need a new HST number. And if the equipment is sold to the farm partnership, he will have to charge HST which will be claimed by the farm.
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In my experience, CRA would not have granted each spouse a separate HST number - they want all proprietorships owned by the couple to be reported under the same number.
However, if the excavating business was a corporation, then of course the corporation would have its own HST number - it does not belong to the shareholder personally.
If the HST number for the farm was set up under the wife’s name (only), she can call CRA to have her husband’s name added to the HST account. In my experience, they will not need a new HST number.
Good to know. I will have to call CRA and see how it goes before I close his account. Thanks to everyone for sharing their knowledge.
I have had to apply for quite number of new HST accounts for married partners where only the husband’s name was on the HST return. Several years ago, I had a large refund denied because the spouse’s (partner’s) name was not on the return.
In this case, if there is only one HST number, then ownership of the equipment being transferred should not be an issue either.
Each spouse has their own HST# at the moment. I would have to cancel the husband’s and then add him the wife’s (farm) account. Once that was done I likely can transfer the assets at ACB but I’m still not sure of that. I may have to dispose of them at FMV, remit the HST and then have the farm recover the HST.
They are spouses so they should be entitled to the rollover of assets gifted between them. According to CRA, the wife is deemed to get the asset(s) at UCC. The husband would have to show this disposition on his tax return (at UCC amounts).
That is specifically if one spouse OWNS the assets, and transfers title to the other spouse. If the husband owns a corporation, and the corporation owns the assets, he can’t just “gift” the corporation’s assets to the shareholder or the shareholder’s spouse.
I’m not sure if the spousal rollover provisions cover the sale/transfer of business assets from one sole prop to another. You’d still need to report the disposition on the T2125 CCA form, which may trigger the need to sell at FMV. Sometimes this is a better option - if FMV is less than UCC or ACB.
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You appear to have assumed the husband ran his business through a corporation. If he was running it through a corp, of course the corp can’t just gift assets without tax consequences. But there is no mention of a corporation anywhere that I’ve seen. Without a corporation, they should be able to gift assets back and forth as long as they report the transactions correctly.
If you follow the link I provided in my original reply, they do discuss transferring depreciable assets.
You are correct. The husband just ran the business as an small business owner, not incorporated. The UCC of any assets left is very small. If I had to dispose of them at FMV, there would be considerable recapture but no capital gain. If HST comes into play then he would have to remit on the FMV and then the farm would have to recoup via ITC. If I can transfer the assets to the farm that is in the spouses name at the UCC, then at least it would defer any tax consequences but I may still have to calculate the HST and then recover it through the farm. I not sure if it makes any difference if I add the husband to the farm or just leave it as is. Realistically, he does now participate in the farming activities.
I may be wrong, but I would just add the equipment to the farm books at UCC. And to satisfy CRA, I would record the HST collected on the sale and have the farm collect the ITC refund. I would also apply for a new partnership HST number, based on my own past experience.
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@kevin
Sorry, I misunderstood. I am currently helping a client transfer assets from one corporation to another (owned by him and his spouse).I guess my brain was still on that wavelength.
@Nezzer I do the same thing; I get fixed on a certain assumption and go with it! Not always the best outcome. Have a great weekend.
Plenty has been said about charging HST on the sale of farm equipment. Keep in mind, though, that most farm equipment is Zero-Rated for HST purposes, so there may not actually be any HST to remit.
Zero-Rated Farm Equipment - Canada.ca
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I agree and thank you. There is one tractor which would qualify but the husband does have an old vehicle as well as an old float and dozer. These are used on the farm as well but I don’t think these would be HST exempt and tax would have to be paid and then recovered by the farm. The only issue would be whether it can be based on the ACB or FMV. Thanks for the link.