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Different Ownership Structures

Incorporating may or may not make sense for your situation, so it’s important to seek advice from your accountant and other professionals such as your lawyer, insurance agent and lender. I recommend reading Don R. Campbell’s book, 81 Financial and Tax Tips for the Canadian Real Estate Investor for more information and background on the pros and cons of incorporating your business as well as other considerations for real estate investors.

Overall, income from passive sources, including rental income, is initially taxed at the highest rate; about 46 per cent depending on the relevant province. This can be reduced to approximately 20 per cent where dividends are paid to shareholders. Due to the tax-favoured treatment of dividends, these dividends may generate little or no personal income tax, but may be subjected to taxes at the rate of approximately 30 per cent, depending on your income and province of residence. This potentially creates double taxation.

For the most part there are very limited advantages to owing residential real estate in a corporation that is not connected to an operating company.  Profit is usually insufficient to justify the costs of creating and maintaining a company for this purpose.  The risk exposure is generally minimal and is normally mitigated by proper insurance coverage.  Tax rate on profit is high (46%) and removal of after tax profits subject to more personal tax.  Only in limited circumstances it might make sense to hold in a separate company, ie. there might be multiple owners so having one corporate name on title might be simpler.  Advice provided by  BRUCE HURST, SHAREHOLDER, DIRECTOR with Reid Hurst Nagy Inc.

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