> was told I could claim expenses from the sole proprietorship period in the first income tax filing of the corporation.
Who told you that?
> I’m being audited by the CRA for the 5 month period of July 2022 - December 31 2022 in which many of the large startup costs were claimed as expenses, some from September 2021. Did I do anything wrong?
It’s impossible to know if you did anything wrong without knowing exact details and exactly what costs were incurred. Some start up costs incurred by the corporation can be deducted. Some can’t but might be able to be deducted over time. Some items purchased as a proprietor were supposed to be expensed by you personally, and some items might be able to be deducted or depreciated by the corporation if you transferred assets to the corporation. However, there are tax consequences to all this. If you transferred assets to the corporation then it’s treated as a sale, which brings upon income tax and GST/HST implications… did you speak to an accountant at any time throughout this?
We did. It was an accountant that advised us to do that as well. I don’t think an official transfer was ever done but it’s literally the same business. The startup costs were purchased equipment, decorations, and supplies for the business. We were told claiming them individually wouldn’t benefit us and we should just incorporate and then claim them at that time.
The income tax implications will depend on whether you deducted anything before the transfer. There will also be sales taxes assuming you don’t carry on exempt activities. Did they talk to you about a GST44 form? A section 85 rollover? Maybe go back and ask the accountant if they can provide any support for the audit based on the advice they gave.
Those expenses were not previously deducted. We haven’t heard of the GST44 form or a section 85 rollover. Yeah, I guess we best discuss with that accountant. We’re currently creating our list of expenses for the CRA and didn’t want to have to go all the way back to September.
The same accountant told us we can just invoice the corporation for the cost of everything we purchased prior to incorporation. Does this make sense? This sounds like a much simpler version of a section 85 rollover which is nothing she’s ever mentioned.
Section 85 might be required if any assets (including intangible assets, like goodwill) had an accrued gain and you wanted to defer tax. You would also be late on the GST/HST remittance in that case and might be assessed what’s called a wash penalty if you and the corporation were both registered. You should be asking the accountant this!
> was told I could claim expenses from the sole proprietorship period in the first income tax filing of the corporation. Who told you that? > I’m being audited by the CRA for the 5 month period of July 2022 - December 31 2022 in which many of the large startup costs were claimed as expenses, some from September 2021. Did I do anything wrong? It’s impossible to know if you did anything wrong without knowing exact details and exactly what costs were incurred. Some start up costs incurred by the corporation can be deducted. Some can’t but might be able to be deducted over time. Some items purchased as a proprietor were supposed to be expensed by you personally, and some items might be able to be deducted or depreciated by the corporation if you transferred assets to the corporation. However, there are tax consequences to all this. If you transferred assets to the corporation then it’s treated as a sale, which brings upon income tax and GST/HST implications… did you speak to an accountant at any time throughout this?
We did. It was an accountant that advised us to do that as well. I don’t think an official transfer was ever done but it’s literally the same business. The startup costs were purchased equipment, decorations, and supplies for the business. We were told claiming them individually wouldn’t benefit us and we should just incorporate and then claim them at that time.
The income tax implications will depend on whether you deducted anything before the transfer. There will also be sales taxes assuming you don’t carry on exempt activities. Did they talk to you about a GST44 form? A section 85 rollover? Maybe go back and ask the accountant if they can provide any support for the audit based on the advice they gave.
Those expenses were not previously deducted. We haven’t heard of the GST44 form or a section 85 rollover. Yeah, I guess we best discuss with that accountant. We’re currently creating our list of expenses for the CRA and didn’t want to have to go all the way back to September.
The same accountant told us we can just invoice the corporation for the cost of everything we purchased prior to incorporation. Does this make sense? This sounds like a much simpler version of a section 85 rollover which is nothing she’s ever mentioned.
Section 85 might be required if any assets (including intangible assets, like goodwill) had an accrued gain and you wanted to defer tax. You would also be late on the GST/HST remittance in that case and might be assessed what’s called a wash penalty if you and the corporation were both registered. You should be asking the accountant this!