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Turning a hobby into a small business by purchasing assets
Expert: Emily Denyes
Randal asked:
I have turned a hobby (musician and sound technician) into a small business and would like to purchase the assets from myself by my business. How do I do this?
Emily Denyes answered:
If you operate your business as a sole proprietor, the first year that you record business income on your personal tax return, include a list of your assets at their fair value in the capital cost allowance section of T2125 Statement of Business or Professional Activities.
If you have incorporated your business and would like to transfer assets into the business, you will need to do a section 85 rollover. To do so, complete form T2057 Election on disposition of Property by a Taxpayer to a Taxable Canadian Corporation. Because there could be other tax effects, I would suggest speaking with your tax adviser before filing the election.
Both forms can be found on the CRA's web site www.cra-arc.gc.ca.
About the author
Emily Denyes, CA, Certified QuickBooks ProAdvisor operates as a sole practitioner providing bookkeeping, accounting, and taxation services for small businesses in the Ottawa region.
Visit www.EmilyDenyes.ca for more information.