The Pros and Cons of Buying Real Estate Through a Corporation in Canada
This article explores the advantages and disadvantages of using a corporation to purchase real estate in Canada. It's important to note that this strategy is generally more complex and may not be suitable for everyone.
When Owning Real Estate Personally Might Be Better
Principal Residence: A major benefit of owning real estate personally is the ability to claim the principal residence exemption. This exempts the capital gains tax on the increase in property value of your primary residence. Corporations cannot claim this exemption.
Lower Costs and Complexity: Owning property personally avoids the setup and maintenance costs associated with a corporation, such as legal and accounting fees.
When a Corporation Might Be a Good Option
Rental Properties: For rental properties, especially those rented out frequently (short-term rentals), a corporation can offer some tax advantages. The corporation can deduct certain expenses related to the property, potentially lowering taxable income.
Flipping Properties: If you intend to buy and resell properties for profit (flipping), a corporation may be advantageous. Corporate tax rates on business income can be lower than personal income tax rates, especially for high earners.
Liability Protection: A corporation acts as a separate legal entity from its shareholders. This can provide some liability protection, as personal assets are shielded from claims against the corporation.
Estate Planning: In some cases, a corporation can be used for estate planning purposes to avoid probate fees. However, there are alternative structures, such as trusts, that may be more suitable depending on the situation.
Additional Considerations
Mortgages: Securing a mortgage for a corporation can be more difficult and expensive than for an individual. Lenders may perceive corporations as riskier borrowers.
U.S. Properties: While some Canadians consider using a corporation to buy U.S. property to avoid estate tax, the high estate tax exemption for Canadians often makes this unnecessary.
Final Points
The decision of whether to buy real estate through a corporation depends on your specific circumstances and goals. Consulting with a tax professional and lawyer is crucial before making any decisions. They can help you determine the most tax-efficient and legally sound approach for your situation.