Transferring personal assets to a new business - Segment 4
Host: Welcome to the segment called Transferring personal assets to a new business, part of the Reporting Business Income and Expenses video.
I’m Kathleen Sinclair, your host for this segment. With me is Andrea Cohen. Welcome Andrea.
Subject matter expert: Thank you Kathleen.
Host: What is important for a new business owner to know if they are bringing assets into a business?
Subject matter expert: If a business owner wants to take assets that belong to them personally, and transfer them into the business for strictly business use, this is a reasonably simple process.
The Income Tax Act requires that these assets be transferred to the business at fair market value.
Host: What do you mean by fair market value?
Subject matter expert: Fair market value is a term you hear quite often. Generally, it’s the highest dollar value you can get for your property in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm’s length with each other.
Arm’s length refers to a situation where two parties that deal with each other are not related to each other, no control exists between them, nor does one party have a beneficial financial interest in the other.
For example, if you have a vehicle that you want to use strictly for business purposes, you would "sell" the vehicle to the business, using a value that matches what you would get for the vehicle if you had sold it to someone else, at fair market value.
This means that the CRA considers you to have sold these assets at a price equal to their fair market value at that time.
Host: What would happen if the transaction took place between people who are related?
Subject matter expert: That would be a non-arm’s length transaction. When you acquire property in a non-arm's length transaction, you have to follow special rules to determine the property's cost.
For more information, go to the CRA’s webpage on non-arm’s length transactions. The link is included in the Related links for this segment.
Host: How does a business owner account for this in the business records?
Subject matter expert: Your business will show a purchase of the assets, with a cost equal to the value of the vehicle at the time it was transferred. This is the value that you will add to the capital cost allowance schedule so that you can claim a deduction for the vehicle each year for income tax purposes. We’ll talk more about the capital cost allowance under the business expenses segment later in this video.
For more information, go to the CRA’s webpage on Capital cost allowance. The link is included in the Related links for this segment.
Host: Thank you Andrea.
This concludes the segment called Transferring personal assets to a new business, part of the CRA’s Reporting Business Income and Expenses video.
Thank you for watching.
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