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Mar 13, 2015|Article

Investment Properties: 5 Reasons to Reconsider Holding yours in a Corporation

Investment Properties: 5 Reasons to Reconsider Holding yours in a Corporation

While investment properties can be held in a corporation, a number of the typical benefits of incorporation may not necessarily apply.

  1. Income Tax

    Due to rental payments being considered passive income (versus active) under the Income Tax Act, the income from the property will be taxed at the highest personal marginal rate. This means that unless you are currently in the highest income tax bracket, you will actually be paying more income tax than you would if you owned the property personally.

  2. Liability

    While incorporation provides a shield against personal liability for what occurs on the property, it is unlikely to provide more than what an insurance policy would. If you have concerns about your exposure, you can always increase or extend your coverage.

  3. Losses

    If the property is held by a corporation and runs an operating loss during a given year, those losses will remain within the corporation and can only be used if the property is able to turn a profit in a subsequent year. In contrast, if the property is owned in a personal capacity, any operating losses for the property will be used to offset other personal income.

  4. Land Transfer Tax

    Where you already own a property, any subsequent transfer of the property to a corporation will be subject to land transfer tax, which can be a significant cost. For example, a property transferred for $400,000 today would incur a land transfer tax of $3,525.00.

  5. Fees and Administration

On top of the legal fees that will be incurred for a transfer of the property, there are various administrative and reporting requirements for the corporation that will involve additional time and costs, including yearly corporate filings and tax returns.