Transferring assets from a person to a corporation is complex but very important. If the transfer is done correctly, the value of the assets may be extracted tax-free (‘boot’). Or, the value of the assets become ‘Paid Up Capital’ (PUC) attached to shares which may be extracted tax-free from the corporation at a later date. As tax is your relationship with the government, the government is saying ‘you paid tax on your earnings, then invested it.  If you invest your earnings, then take the same amount out of your investment, we won’t tax you on it.’

Fair enough. However, there are complexities when you bring in assets from personal/sole proprietor ownership to the corporation. What is the Fair Market Value of the asset? What is the tax value of the asset? (i.e. if  you took CCA on the asset, it is not at the original value for tax purposes) Should you use a Section 22 election on the Accounts Receivable? What boot (i.e. non-share exchange like cash or debt) should be taken by the owner in exchange for the asset? As the assets’ value may be taken tax-free from share PUC (depending on what the individual gets when the assets are transferred), have the assets been registered with the CRA’s T2057 form? There are other considerations as well.

There is an opportunity to minimize taxes when setting up a company. It is a good idea to consult with a professional on this.