You should attribute to goodwill the balance of the purchase price that remains after you attribute the FMV to each asset and to inventory.įor GST/HST purposes, if you buy a business or part of a business and acquire all or substantially all ( at least 90%) of the property that can reasonably be regarded as necessary to carry on the business, you and the vendor may be able to jointly elect to have no GST/HST payable on the sale by completing Form GST44, Election Concerning the Acquisition of a Business or Part of a Business. The amount you attribute to each asset should be its FMV. These amounts should coincide with the amounts the vendor determined when reporting the sale. If the individual asset prices are not set out in the contract, you have to decide how much of the purchase price you should reasonably attribute to each asset, how much to inventory, and how much, if any, to goodwill. If the individual asset prices are set out in the sale agreement, and the prices are reasonable, then you could use these prices to calculate your claim for capital cost allowance ( CCA).
In some cases, the sale agreement sets out a price for each asset, a value for the inventory of the business and, if applicable, an amount that can reasonably be attributed to goodwill. When you buy a business, you generally pay a set amount for the entire business. The option you choose will affect how you will account for the purchase of the business assets for income tax purposes. When you are considering becoming a business owner, you have the option of buying an existing business or starting a new one. For more information, go to Input tax credits and guide RC4022, General Information for GST/HST Registrants. They allow you to change your business type from a sole proprietorship to a corporation or a partnership, or from a partnership to a corporation, on a tax-free basis.įor more information, go to interpretation bulletin IT-291, Transfer of Property to a Corporation Under Subsection 85(1), information circular IC76-19R3, Transfer of Property to a Corporation Under Section 85, and interpretation bulletin IT-413R, Election by Members of a Partnership Under Subsection 97(2).įor GST/HSTpurposes, you may be able to claim an Input tax credit ( ITC) for the GST/HST paid or payable on property such as capital property and inventory, that you have on hand on the day you register. The rules regarding these transfers of property are technical. The elected amount then becomes your proceeds for the property transferred, as well as the cost of the property to the corporation or partnership. This amount may be different from the FMV, as long as you meet certain conditions. This is the value that you will add to the capital cost allowance ( CCA) schedule for income tax purposes.įor income tax purposes, when you transfer the property to a Canadian partnership or a Canadian corporation, you can transfer the property for an elected amount.
Your business will show a purchase of these assets, with a cost equal to the FMV at the time of the transfer.
If this amount is greater than your original purchase price, you must report the difference as a capital gain on your income tax and benefit return. This means that we consider you to have sold the assets at a price equal to their FMV at that time. The Income Tax Act requires that you transfer these assets to the business at their fair market value ( FMV). If you are operating a sole proprietorship, this is a reasonably simple process. You might transfer your personal assets to your business.
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