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Incorporating a home-based business

Expert: John R Mott

Wayne asked:

In February of 2007, I chose to incorporate my home-based business which I was operating as a sole proprietorship for several years.

I realize that I must include business income/expenses on my personal income tax return for the period January to February 2007 and that I must file a separate Corporate Tax Return for the remainder of the fiscal year for my corporation.

My question is what happens to my unused carry forward business-related expenses from my sole proprietorship? Do I continue to apply them to my personal income tax or do they get transferred to the corporation? What about the unused Capital Cost Allowances? What about the existing inventory of goods at the time of changing to the corporation?

John R Mott answered:

If you incurred business related expenses after date of incorporation, you should reimburse yourself from the corporation, in the same way you would submit an expense report if you were an employee of a large company.

You should also sell any depreciable assets to your corporation for a price equal to their fair market value. You cannot continue to claim expenses or depreciation in your personal tax return after the source of income has disappeared.

About the author

John Mott is a chartered accountant and tax specialist with a private practice in mid-town Toronto. He provides tax, accounting and advisory services to individuals and small businesses. He may be visited online at:

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