Transfer of Assets from Sole Prop to Incorporated business

Tax Topics
1

I am transferring assets from sole prop to my (sole director) incorporated business.

Computer (Desktop computer, monitor, cell phone).

The transfer is taking place at UCC which is in line with FMV.

I don’t need a S.85 election T2057 because there is no gain to defer.

I booked a J/E:

Computer $1643.00
Shareholder Loan $1643.00

Can anyone confirm or provide suggestions?

Thanks

2

You’re also presumably transferring goodwill: cost of nil, but FMV of $??. That’s all capital gains without a S.85.

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3

Yes, transfer of GW to Incorporated business.

I can complete an s.85, but the question is what do I value GW @ (e.g. 1x yearly sales)?

What I’ve seen is an S.85 completed for GW e.g. $15,000.000, however, on BS - GW has a value of $1 what would you recommend?

To explain, on form T2057 the following is entered under section “Description of shares received”

under column:
Number of shares transferor received: 1
Class of shares: Class A preferred (depends on the share type in the articles)
Redemption value: e.g. $15,000.00
Paid-up capital under ITA: $1.00.

To continue, under section Particulars of eligible property disposed of and consideration received (ECE)
Under columns:
Description: GW
FMV: $15,000.
A:0
Agreed amount: $1
Amount to be reported: $1
Consideration received (non share) Description: $1
Consideration received (share) number and class: 1 class A share
Consideration received (FMV) of total consideration: $15,000.00

Is this how you would complete the form for this scenario?

4

I would opine that the T2057 details you have above cover 80% of the cases, but each situation is different, so I wouldn’t go as far as confirming that this is the correct way for your circumstances.

For the valuation, there are no straight rules of thumbs like that. Need to factor in growth, whether it’s a one-man show or got some leverage, etc.

I’d venture to say that you should consult with an accountant for all this. And if you don’t work with one already, feel free to give me a shout; you can find our contact info on our website: www.duncanandco.ca

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5

The situation is the sole prop is a service business (one man show with reasonable growth), which built GW over the year from sales made and reputation.

I will keep you in mind for future services