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How Do I Transfer Personally Owned Assets Into My Business?

May 30, 2022


How do I transfer personally owned assets into my business? 


Many small business owners start off their business as proprietorships or partnerships, which taxes profits as an individual, rather than in a separate corporation.  As the business grows, there are limited tax planning opportunities available to a proprietorship, and frequently you will be recommended to consider incorporation.  Once incorporated what happens to the assets and goodwill you have been building up in your proprietorship though?

The first method of transfer is a direct sale of the assets at fair market value.  The problem with this method is that the fair market value is frequently higher than the depreciated cost of the assets, creating unintended taxes for the business owner, which in some cases can be quite high (especially in the case of significant goodwill build up). 

To counteract these taxes, the CRA allows for a tax-deferred transfer of assets into a business at a price lower than fair market value.  The reasoning behind the rollover is that the business owner has not really disposed of his business, he has just placed it in a more tax-efficient vehicle. Therefore, they shouldn’t have to pay tax on something still being used in the same business, which they still own. 

To be eligible for this tax-deferred transfer, the assets will need to be transferred for less than fair market value, and in consideration, the transferor must be receiving a share of the capital stock of the Corporation.  After the amounts are decided upon, an election form must be filed with the CRA by the later of the tax filing dates of the transferor and the corporation.

Please note, that although this transfer assists with deferring any income tax payable on the transfer of the asset, GST and/or PST may still be applicable depending on the asset being transferred. 

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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