Entrepreneurship & Small Business

Transferring a personal asset of a high value to a company (corporation)

  • Last Updated:
  • Oct 12th, 2019 1:46 am
[OP]
Newbie
Feb 27, 2017
4 posts

Transferring a personal asset of a high value to a company (corporation)

The Case:
You own an expensive piece of antique. An appraiser assessed its value, worth easily more than 1 million dollars.
You plan to sell it. However personal taxes would be too high.
Now, you have a corporation.
You can transfer that antique as an investment (or a loan) to your company and sell it as a company asset.

Question: How exactly can this "transfer" be done? Any form to fill out?

Thank you,
Last edited by PensiveOwl on Oct 8th, 2019 2:23 am, edited 1 time in total.
12 replies
Deal Fanatic
Aug 21, 2007
5615 posts
565 upvotes
Markham
it can be done...section 85 as per above

however, not all that simple to do correctly unless you have some background
[OP]
Newbie
Feb 27, 2017
4 posts
Appreciate your replies!

What bothers me most is that FMV (fair market value). One thing is the appraisal, the other the real price that could be fetched at an auction.
It could be much lower or much higher than the initial appraisal.
What amount to elect? The company is only 2 years old, not much activity/money in there yet.

Thank you,
Deal Addict
Nov 13, 2006
1161 posts
791 upvotes
PensiveOwl wrote: Appreciate your replies!

What bothers me most is that FMV (fair market value). One thing is the appraisal, the other the real price that could be fetched at an auction.
It could be much lower or much higher than the initial appraisal.
What amount to elect? The company is only 2 years old, not much activity/money in there yet.

Thank you,
Use whichever option you can get backup/documentation for.
Sr. Member
Nov 12, 2014
918 posts
611 upvotes
Kingston, ON
Why are you rolling this to a company just to sell it in the company? You'll pay more tax at the end of the day as there is a tax cost (and zero deferral) to taxing passive investments in a corporation....assuming you are in Ontario of course.
Deal Fanatic
Aug 21, 2007
5615 posts
565 upvotes
Markham
PensiveOwl wrote: Appreciate your replies!

What bothers me most is that FMV (fair market value). One thing is the appraisal, the other the real price that could be fetched at an auction.
It could be much lower or much higher than the initial appraisal.
What amount to elect? The company is only 2 years old, not much activity/money in there yet.

Thank you,
in doing the rollover, you would typically elect at your personal acb, in order to defer capital gain fully

QN5252 makes a valid point about there potentially not being any value to transferring it in however (unless there are capital losses for example)
Deal Fanatic
Sep 23, 2007
5061 posts
1158 upvotes
I'm not clear all this effort will actually generate a tax savings. The key point to having a corporation is for tax deferral. You can for example, leave income in a corporation and pay yourself slowly to take advantage of the personal tax exemption limit or periods of your life where you expect to have a lower income to keep yourself in lower tax bracket. In theory, the total taxable income between you and your corporation would be the same (or even higher) if you tried to put the asset into the corporation. But then it boils down to a tax planning strategy based around your expected income and cash needs over the course of your life.

There are also rules about ACTIVE BUSINESS income. If your corporation is not in the business of selling antiques, I think if checked by the CRA, any tax benefit you create (if any at all), will be voided. Plus you would have gone through a lot of hassle to go through this plan. For 1 million dollar transaction...I think you can consult with an accountant to make sure this goes right.
Deal Fanatic
Oct 7, 2007
8402 posts
4358 upvotes
As someone with a strong accounting background, I was told when attending accounting seminars that Section 85 rollovers are complicated and should be handled not just by an accountant but someone who has a lot of experience in this area. I am sure today there is lots that can be read online before you need to consult with a practitioner but I have always been a little bit wary of these because of the possible unintended tax consequences. Perhaps there are other options that should be considered based on whatever goals it is you are trying to achieve.
Sr. Member
Feb 23, 2005
906 posts
37 upvotes
An antique is a listed personal property. You cannot transfer it into the company with a tax deferral under Section 85, unless the antique was an inventory for self-employed business.
Last edited by jkwan18 on Oct 8th, 2019 3:26 pm, edited 1 time in total.
Sr. Member
Nov 12, 2014
918 posts
611 upvotes
Kingston, ON
jkwan18 wrote: An antique is a personal use property. You cannot transfer it into the company with a tax deferral under Section 85, unless the antique was an inventory for self-employed business.
What? I don't think that's correct.
Sr. Member
Nov 12, 2014
918 posts
611 upvotes
Kingston, ON
jkwan18 wrote: An antique is a listed personal property. You cannot transfer it into the company with a tax deferral under Section 85, unless the antique was an inventory for self-employed business.
This still isn't right that I'm aware of....LPP is capital property, right?, so it's eligible under 85(1.1),
[OP]
Newbie
Feb 27, 2017
4 posts
Apologies, just came back from my travels.

Interesting reading. Those statements make sense.

The reasons considered (not in a particular order):

a) Personal Taxes. As per the latest update, the auction can allegedly bring in around 1.5 million dollars (maybe more). Add it to a personal income of 120K/year. Calculate the income tax (ON).

b) The way to raise the capital for your company. Agree, the business may be deemed as a "passive" one (even though there are some "active" services). Probably not many advantages in terms of tax savings. However, there are the ways to "lower" the overall business income. You can buy a real estate or invest money further in something that will "produce" money.

c) Long-term income security. Even a low salary/dividends will bring peace of mind. The current job won't last. In fact you may consider quitting soon. You're not part of the "young" workforce anymore. Once you hit a 50-year mark, probability of getting a new job goes south faster than a snowbird in November.

d) "Shielding" the money, or the consequences of that personal income. Scenario where you ex-partner(s), child support, contributions, etc. will be calculated. Any potential "money demands".

e) More control and flexibility. A corporation has better means and more power of controlling and distributing finances.

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