Q&A Bookkeeping for Transitions

Q: Are the QuickBooks data files available?
A: Yes, they are available under the Links tab on my website

Q: I have a sole proprietor who incorporated Nov 23/11. She did nothing different about running her business after Nov 23rd. She has chosen October 31, 2012 as her year end. My question is do we STOP recording transactions in the sole proprietors data file on Nov 23/11 or on October 31/11 or do we continue to Dec 31/11? Would we still go thru the processes you discussed today to move balances from the sole proprietor's data file to the new compoany data file? There are no loans or assets for this client. GST became effective Jan 2012 for the Inc. (newco) so what happens to the GST for the sole proprietor from Nov 23/11 to Dec 31/11?
A: I don't really have answers for you as your first question is a legal one and I don't practice law. When your proprietor incorporated, was there a business with a valuation that should have been sold to the corporation? If so, where is the contract for the sale/purchase of the business? Why did GST become effective in Jan/2012 for the Newco? It should have become effective when the newco started operating if the sole proprietor was a registrant, there should not have been any lapse.
Just because you incorporate doesn't mean you own the right to the business automatically. There must be a contract to move the business (as in a purchase/sale agreement) to start using the corporation for the business.

Q: I was taught that personal income tax owed by a proprietor is never shown on the business financials - has that changed or is this just for the purposes of this lesson?
A: Good question. A financial report can have anything you want on it and if your standard is not to show the tax because it's personal, that's fine. It's also fine to show it if it makes sense to show it, and for the purposes of this exercise, where I was showing the rental and business income only and doing a pro-former (example in fancier words) I wanted to show the integration of tax. Remember integration is where the tax effect should be approximately the same, whether its personal or corporate, and when you want to choose between corporate or personal tax treatment, sometimes there is a difference or a deferral depending on the rates. We also talked about how if this was a personal services business there could be a huge difference as integration doesn't work because of the decision that this type of corporation would be penalized, and taxed exactly the same as if the person were an employee.

Q: If a sole proprietor purchases computer equipment for the purposes of the corporation 3 weeks before he gets his incorporation date, can these be posted in the corporation and offset to shareholder loan or do they have to be run through the sole proprietorship?
A: There are some special rules about bringing assets into the corporation from personal and it would be best to read those rules. Having said that, the sole proprietorship is the person. The person owns an asset, and the asset is now being sold to the corporation. There should be a contract for purchase/sale and tax consequences must be effected.

Q: Is it possible to get a copy of the PowerPoint?
A: The PowerPoint really isn't very useful, it's just a talking point guide, better to get the video and it's for sale on my website now in the Store @ www.taxdetective.ca/shop.html. If you are an IPBC member, it's 50% off by accessing special pricing page found by going to my Partner page on the IPBC.ca website once you are logged in as an IPBC member.

Q: What are some of the major advantages of incorporation? ...given all the drawbacks discussed today?
A: LOL, now that's a good question. I'll leave that for the lawyers and your clients to discuss. It's expensive to incorporate, and to maintain a corporation requires special skills and knowledge. The reasons to incorporate should be legal ones relating to limiting liability, or sharing income with investors who have provided capital or sweat equity, via dividends, should there be excessive income over and above salaries. If you don't follow proper procedures to incorporate, and to purchase the business, as well as the assets, you may find that your corporation isn't doing business with the rights it requires to do the business. Don't forget to sell the business, not just the assets!

To download the QBB sample files, or if you aren't a QuickBooks user, access the samples of both proprietor and newco Journals or the GL in PDF format, click below:

http://www.taxdetective.ca/bkpgtransitions.html