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The Rural Voice, 1991-11, Page 18Aft tiffs - /5 7 9)4„?'fro 'ref Copper Base ROYALE BULBS made by PHILIPS Guaranteed 6000 hours Also Available •Energy Saving Lights 'Heat Bulbs, etc. THE DUTCH STORE 519 482-7302 55 Albert St. CLINTON FORTRESS FEEDERS • Excellent durability • Patented agitators to prevent bridging • Guaranteed to handle any type of hog feed • Available in market hog and weaner size in any length • Double or single sided • Buy direct from the manufacturer NOW HANDLING can -con - a division of Steve's Welding Line of Equipment GROBA WET/DRY FEEDERS FORTRESS FEEDERS' Box 382, Blyth, Ont. NOM 1H0 519-523-4555 14 THE RURAL VOICE 4 NH:111A' i 0(14.1415;?... - HOW DO I INCORPORATE? In the last Agrilaw, we considered the question, "Should I Incorporate?" The advantages to the farmer of incorporation are: • limited liability; • tax benefits; • estate planning; and • perpetual existence which facilitates business transactions. How can the tax free transfer of as- sets to the new corporation be accom- plished to obtain maximum advantage from incorporation for the farmer? Corporations often buy assets from their shareholders; for example, an in- dividual can incorporate a corporation to take over his proprietorship or hold his investments, and the new corpora- tion's first transaction may be to buy assets from the incorporator. Section 85 of the Income Tax Act of Canada permits the corporation to buy these assets from the individual on a "roll- over" basis, that is, without any tax liability. However, this transaction is only tax free if there is a joint election by both the vendor and the purchasing corporation. To accomplish a Section 85 roll- over, the purchasing corporation must be a "taxable Canadian Corporation." It must be incorporated in Canada (or have been resident in Canada since 1971). The vendor, including any partnership, must also be a taxpayer. The assets being sold to the corpor- ation must be capital property (but cannot include real property owned by a non-resident); inventory; accounts receivable; eligible capital property (for example, goodwill of the corpora- tion); and any resource properties. For the shareholder to roll the as- sets into the corporation on a tax free basis, the shareholder (vendor) must receive at least one share in the capital stock of the purchasing corporation in exchange for the transfer of assets. The vendor may also receive non - share consideration for the transfer (for example, cash, promissory notes, or any other property). However, the value of the non -share consideration must not exceed certain limits. This must be discussed with a lawyer and an accountant. To claim the rollover, the vendor and the purchasing corporation must jointly sign a prescribed election form dictated by Revenue Canada, and this must be filed with Revenue Canada. This form sets out the elected amount for the value of transfer of the assets. Usually, the elected amount is the vendor's original cost of acquiring the asset. In this way, the corporation steps into the shoes of the individual vendor, and when the corporation dis- poses of the asset, it is liable for any capital gains tax or other tax conse- quences that would have been the ven- dor shareholder's responsibility. The parties to the rollover may elect a dif- ferent amount than the vendor's cost base, depending on the circumstances of the individual and the corporation. Whether or not incorporation and a Section 85 rollover will be to the ad- vantage of an individual farmer can only be determined after a thorough investigation of the farmer's financial position. Legal and accounting advice is required to ensure that the necessary corporate steps are taken, and the app- ropriate tax considerations are identi- fied, including selection of the opti- mum elected amount for the parties involved.0 Agrilaw is a syndicated column produced by a full service London law firm. Marlene McGrath, an associate lawyer, specializes in corporate and commercial law, wills, and estate planning. Agrilaw is intended to provide information to farmers on subjects of interest and importance. The opinions expressed are not intended as legal advice. Before acting on any information contained in Agrilaw, readers should obtain legal advice with respect lo their own particular circumstances.