How do I set up an entity/trust/business in Alberta Canada?
Wholesaler · EDMONTON, AB · Member since 2016 · 16 posts · 1 vote
Hi there fellow Canadians.
I am in the process of getting my business off the ground and I've been advised to set up a legal entity so that I can buy houses with it. My training is by an American who also has students in Canada doing Real estate Canadian way.
I would like to know how to set up an entity that's equivalent to an LLC here in Alberta Canada.
I have done some research online and I am still confused.
I am a sole investor with no office address, and so I am not sure if i'm supposed to set up a limited partnership, corporation or limited liability partnership (which i heard is only for professionals). I haven't sought after a legal advice from an accountant or lawyer yet. So I would love to hear what you have to say on this topic.
Thank You
There is no equivalent to an LLC {which has elements of both a sole proprietorship and a corporation} in Canada.
Limited Liability Partnerships (LLP) in most, if not all, parts of the country are specifically for professional (lawyers, doctors, dentists) businesses.
This leaves you with a sole proprietorship, a partnership or a corporation ... of these, a partnership is a flow-through entity between 2 or more partners. You would be a member of the partnership as either a sole-proprietar or via a corporation.
You do not need a corporation to hold real estate in Canada. Furthermore, depending on the nature of your business and your personal marginal income tax rate, holding real estate in a corporation could very well result in higher taxation than holding real estate in your own name. Income from investments - including rent from investment properties - is viewed as passive income by the CRA. As such, a corporation whose primary income is passive is in-eligable for the small business tax rate and will pay income tax at the highest corporate rate.
Trusts are another beast altogether and while they have a useful place in wealth management and distribution to family, you are not going to need one starting out.
What I would advise is that you create a bullet list of your near, mid and longer term business objectives and then sit down with an account who specializes in business and real estate to create a roadmap for your business growth .... this will identify whether it makes sense to incorporate at the outset and, if not, when it would be appropriate and how things should be handled in the interim to mitigate the taxable event at the time assets are rolled-over into a corporation.
As Roy says sit down with your accountant and work this out. You do not need anything like what you are considering. Real estate investing does not require special protection, simply have adequate insurance coverage.
It is unnecessary to have additional protection unless you have 3 or more employees.
Thank you @Roy N. for the detailed explanation. My initial plan was to do what you suggested, but then I heard that it's best to buy your properties under a trust, in case of a law suit. This way, no one can personally come after you.
The training i'm also taking also recommends investing in real estate from a tax free account such as the TFSA for us Canadians here to reduce taxation.
I plan to do RTO, which is not the traditional rental.
I guess i have to go network with an accountant who specializes in real estate investing to help me map out my plan, like you suggested @Thomas S.
You should request a return of your tuition to this training as they are providing you with poor advice.
In Canada, registered accounts (RRSP, RESP, TFSA, RIFS, etc) cannot own real property. However, it is permissible to hold arms-length mortgages in such accounts - be forewarned that there are only half-a-dozen (or less) remaining trusties who will service mortgages from registered accounts.
Similarly, you need to be careful with how you conduct Rent-to-Own (a term which is a bit of a misnomer). In recent years the U.S.A. has cracked down on the predatory practices common in the Rent-to-Own industry. Canada has been a little slower in tightening regulations here, so you will encounter many "gurus" - both home grown and from the U.S.A. - espousing methodologies which may eventually run you afoul of the CRA and regulators here in Canada.
If you search here on BP you will find many threads on Lease and Option agreements and tenant buyers. @Doug P. has long used lease & purchase options as a core business practice and would have a better idea of what is still possible in Canada and where you might dance the the grey areas w/r to recent CRA interpretations.
Thanks @Roy N. for the advice. The training is by an American, so I am trying to convert his recommendations into the Canadian way. He used to do training in Edmonton actually, so he's quite knowledgeable on both sides. He also recommend closing with an Attorney who can caution you against any foul practices, so i don't intend to do everything on my own.
I attended a REIN conference last fall and I met a handful of people who are doing RTO and lease options. Barry McGuirre even offers a course on it here in Edmonton, which goes to show that it's a common practice here. I bought a RTO book at the conference as well that talks about how to do this in Canada and the process is the same as that of the states.
I will look up Doug's posts to see how he's doing it in Waterloo.
I will do my research on investing with registered accounts, I have some knowledge on arms length mortgages, but my understanding is that I can only lend money to someone that an arm's length from me, which means that I can't invest from it.
Jeeze, I can see why Canadians invest in the States!
I know there's a gold mine in my back yard though, so I will start with it first :)
Thanks again Roy. Can't wait to do my first deal ;)
While we're at it, do you have any experience with Yellow letters in New Brunswick? Another system that I'm trying to Canadianize
Holding an arm's-lenght mortgage in your registered account does mean that you can have no interest in the property securing the mortgage ... so it's not viable for lease-option strategies (aka: rent-to-own).
We do not do "yellow letters", so I cannot offer any assistance there.