What is the correct way to report inventory purchased years ago on the Return for a new (sole proprietor) business when the item is sold?

[_Ashley_]

I’ve been a very casual eBay seller for numerous years (selling less than 10 personal items every year or so) while I worked full-time elsewhere. I’ve been a collector of memorabilia for much longer. Over the years I have accumulated quite a bit of “inventory” (trading cards, comics, magazines, action figures, etc.) that I figured I would likely end up reselling someday if my tastes changed, I needed the money, etc.

Some items were purchased for my personal collection, and some were purchased because it was a great bulk deal that I split up (some for personal use and some for eventual resale). Some I got for free by attending conventions, events, shows, etc. I have receipts for a large number of the items as many were purchased online or at retail stores (but not for all of them, as some, at the time, I intended to keep forever, and some like I said, were obtained free).

I'm looking to finally register a business and put a larger focus on reselling this year, and I understand that in your first year of business, you would have to report your opening inventory at $0.00.

Since the inventory was never reported to CRA, and my business didn’t exist at the time, how do I account for those previously purchased items when they are sold in the current tax period I’m reporting on? All the old items will become my business inventory, but they were never purchased specifically for this new business.

I know normal business inventory purchases will begin to go on the "purchases during the year" line once my business starts. Would I include the purchase cost for the “previously purchased” sold items on this line, too (for the year they are sold only)?

For the items that I don't have receipts for, would I have to obtain FMV for each of them or can I just use $0.00? I know that would involve paying more tax, but it would just be so hard to find FMV for the majority of these items as a lot of their values are based off collector demand rather than an average/standard value.

[TurboTaxSusan · Accepted solution]

Your business is essentially purchasing the inventory from you. So yes, you would have to enter this as a purchase of inventory. Ideally you would enter the FMV as the price, not only to save on tax, but also for your own knowledge. It will help you determine if your business is actually profitable, and if something happens to the items (flood, fire, stolen, etc...) you have an accurate amount to give to the insurance company.