Turning Your Personal Assets into Business Assets
It is not uncommon for many businesses to want to utilize some of their personal assets in their business. At the same time they want to be able to claim any expenses that may now be related to these. In order to bring your personal assets into your business you have to go about it in a proper manner.
It will depend on your business how you properly transfer these assets.
For sole proprietors:
You need to determine what the fair market value is of the particular asset that you want to transfer into your business. For example, if you are going to take your desktop computer or your laptop and use it just for your business, then you need to determine what the value is of these items at the time of the transfer. This amount now becomes the opening balance of your undepreciated capital cost in your business records for that item.
It gets a little more complicated when you are transferring personal assets to a business partnership.
In this case it can be for an elected amount rather than the actual fair market value amount. The amount is classed as your proceeds, and becomes a cost to the partnership business. If the amount that you have elected for is more than what you paid for it, then it now becomes a capital gains for you. It is important that you understand the rules concerning this type of property transfer.
Transfers of personal property to a corporation, is very similar to the way it is conducted for partnerships but has specific rules that need to be adhered to.
Keep in mind that in each of these cases you could be eligible for an input tax credit for GST/HST.
There are a lot of things to be aware of when it comes to taxes and businesses. Transferring of property is just one small part of it. It may seem simple to the lay person thinking that all they have to do is use their personal properly strictly for their business and just claim the related expenses under the business. Then if their accounts happened to be challenged by the CRA, potential problems can surface.
It is important that you advise your tax accountant about any transfers of personal property that you made to your business so he can be sure that it has been accounted for properly in your financial records, which he is reliant on to complete your taxes efficiently.