Moving private assets or sole proprietorship with you?

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scorpionman
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Moving private assets or sole proprietorship with you?

Post by scorpionman » 31 Dec 2017 03:43

I haven't seen too much on this but if you run a sole proprietorship (some countries call it a trade license) and started with zero and maybe have some negligble intangible property, if you later pick up and move yourself to another country of residence, must you mark up this business attached to your person to fair market value and have to pay a large capital gains tax on departure even though you haven't sold anything?
Also who determines a fair return if this is the case? Does the government say, well he can't possibly have a 60% or 200% return on his business therefore we'll say it's not fair market value?
Or do you just pick up your personal business where you left off as a non-resident? Does it depend on how passive or non-passive the income is? If it depends only on you being there clearly it can't have much value without you but if it's automated like an Internet business then it's more passive ans has value even if you're not there?

twa2w
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Re: Moving private assets or sole proprietorship with you?

Post by twa2w » 05 Jan 2018 17:28

Any assets purchased by or for the proprietorship are your assets and would be subject to the usual CRA rules.

I think from your post that you are not referring to that, but are referring to the value of the proprietorship or business itself and the stream of income it generstes.

Which may imply non physical assets you developed yourself.

For example

A aeries of do it yourself how to videos on you tube which generate advertising revenue.

Or a piece of software you developed that you license and service over the internet to a niche market ( or apps on the app store).

In your case you seem to have an Internet business that has no physical assets and requires little or no input on your behalf and will generate income regardless of your location. There is no physical location - it exists on the Web only And customers are anywhere in the world?. You are asking if CRA would deem that income steam, and perhaps the ' non physical' asset itself, to have a value that would be deemed sold when you become non-resident with the appropriate tax due.

I can't answer that part conclusively but at this point would say no to deemed dispisition but that is just a best guess on my reading of CRA.

In terms of valuation, if you did have to deem it sold...
In theory, the fair market value would be the price someone would pay you for that asset and stream of income, assuming it continues without you or could eadily be taken over by someone. This can usually be determined fairly easily by a multiple of the income stream, except that with an Internet business there are a few issues. How unique is your business and how protected is your product.? copyrights, trademarks etc. What would stop someone else from entering the same business, or developing a better widget etc.
A business valuator may provide a reasonable estimate I suppose if they have benchmarks for that type of business.

scorpionman
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Re: Moving private assets or sole proprietorship with you?

Post by scorpionman » 07 Jan 2018 18:42

I just love these tax systems that are based on utter uncertainty :D
Was just wondering if it falls under the permanent establishment in canada definition. No doubt a Canadian corporation, regardless if it has a business inside it with no Canadian clients, assets or business has a permanent establishment in canada by virtue of at least incorporation and management. However, a sole proprietor is just you. I suppose if you leave the country it would be like a redomicile of a corporation. Can't have a permanent establishment if the establishment has legs and and can get on a plane.

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Norbert Schlenker
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Re: Moving private assets or sole proprietorship with you?

Post by Norbert Schlenker » 13 Jan 2018 16:49

I think you're overthinking this. If the business's value is in YOUR head, then Canada has no plausible way of assessing tax on that value when you get on the plane to Nassau.
Nothing can protect people who want to buy the Brooklyn Bridge.

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