When you are starting up a business, whether it be incorporated or not, there will be costs you will incur and pay for personally. You may have no business bank account or visa, or even have bought some items some months or years before, for personal use, and can now use them in the business.

Can you transfer these items to the business? Yes.

If you have some items that you have owned for some time, (Computer, desk and other office furniture), you can have the business buy them from you. They must be valued at fair market value. You can establish this by looking in the newspaper ads for comparable items, window-shopping at second hand stores or for larger items, getting a written valuation. You should try to keep on file some evidence of the valuation, at least for larger items.

What is the advantage of this transfer?
For items that are expenses, they can be deducted from income to reduce the taxable income of the proprietorship or company.

For items that are capital assets (Computers, desks etc.), they can be amortized over a number of years and used as a deduction against taxable income. In the year of purchase such items are amortized at half the normal rate. This leads to a good tip for any business, Always buy assets just before the year-end and not just after, as there is a considerable acceleration in the write off.

In both cases, if you have not yet started to derive income, the loss is available against other income for proprietorships, or can be used against future profits in the case of companies.

There is another advantage for companies. The amount that is loaned to the company is credited or added to your shareholders loan. The shareholders loan account is a record of all the transactions in and out of the company, between the owner and the company. At the end of the corporate year, if this amount is negative, i.e. the owner has taken out more than he or she has put in, that amount is income to the owner. Tus the sale of assets and accounting for expenses paid for personally, will reduce the income taxed in the owners hands.

On an ongoing basis, these personal expenses and automotive mileage charges can be submitted to the company on an expense report and either reimbursed, or credited to the shareholders loan.

• There is one expense you should be sure to remember. Office in the home. If you are using your home as an office and have a dedicated space in your home for office, storeage of filed etc., you can claim an expense for this useage. Often it is calculated as the percentage of space used (square footage of office to total footage) times the expenses of the home. E.g.
  
• Mortgage interest
  
• Property taxes
  
• Insurance
  
• Utilities
  
• Repairs and upgrades to office (100%)

The GST implications are very similar. If you are registered for GST you can claim the GST paid on these expenses and even impute GST on the second hand items. This is a major reason to file GST before you reach the $30,000 revenue amount, after which GST registration is compulsory. If you have significant expenses you can claim all the GST paid and receive a cheque from the government.

Lastly, I am often asked if you can claim GST paid for before registration. Within reason, you can claim these expenses, if it is clear that you were in the process of starting the business and had intentions of registering. It is recognized that there is always some confusion and uncertainty around this time and leeway is given.

The same rules apply for companies who may incur expenses prior to the incorporation date and a similar leeway will apply.