Switching from a Canadian corporation to a Canadian sole-proprietorship


I currently run a Canadian Corporation, but I'm finding taxes (both accounting fees and bookkeeping) a real pain and expense.

I would like to keep the corporation and basically find out how to file a "null" every year and switch the company back under my name (Sole Proprietor) until I'm really making good money. Then switch it back perhaps when that happens and I can get the tax benefits.

I'm not sure exactly how that works but would appreciate any advice on this as I can't find any information online.

Tax Canada Accounting Sole Proprietorship Corporation

asked Apr 14 '11 at 14:37
Geek Gal
16 points

1 Answer


It's superficially pretty simple. From the tax point of view you have two companies: Company #1 is your corporation, Company #2 is your sole proprietorship.

If you decide you want to make Company #1 dormant so it has zero revenue or expenses, then just do all your business under Company #2, get all the invoices addressed to Company #2 and so on. Company #1 has no transactions, and can file a null return.

It can, however, get more complicated when you think about assets. Strictly speaking, if Company #1 has assets (a website, equipment, contracts) and they are going to be used by Company #2, then Company #2 should buy or rent these from Company #1. I don't know how the tax authorities think about this (I'm a businessperson, not an accountant) but it may be worth looking at that. Probably the simplest is to just do a contract between Company #2 and Company #1 where you buy all the assets (you are going to need) for a reasonable price, and that will be one of the last transactions in Company #1. That may keep the tax authorities off your back.

The other thing to keep in mind is the value of tax losses. If you lose money in a company that's a good thing for later ... it will reduce the taxes on your profits when you finally make money. So make sure in all this transferring of things between Company #1 and Company #2 that you don't end up paying taxes on revenue in one company when you have unused losses in the other company.

By the way, this advice applies to other countries as well, not just Canada: I've just answered using general principles which are the same internationally (even if I'm in Canada myself).

P.S. This all assumes you are the 100% shareholder of your corporation. If not, you will need to make sure that the arrangement is fair to other shareholders ... making the 'buying of assets from Company #1' a transaction that will have to be fair.

answered Aug 12 '13 at 01:18
Kamal Hassan
1,285 points

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