Canadian investor looking for assistance

[Tyson Head]

Hi all, I am just looking for advice from Canadians that know the rules and regulations. I currently have two rental properties in my name and working on a slow foreclosure flip of a single family house while I live in it. I am hoping to sell the house and purchase a smaller multi family complex, somewhere between 2 and 12 units. What is the best way to protect myself from the tenants? Should I put it in a LLC, LP or something? How can I keep the tax man away from my cashflow? Is there a way to gain some benefits like vehicle write offs and things like that? Can I start a business dealing with rental properties and have the business own the multi-family complex? Wow there is so much I need to learn. Thanks for any help you can provide.

[Roy N.]

@Tyson Head

An LLC is a U.S.A. entity which does not exist in Canada. If these properties are in BC, then your options are continuing to hold ownership personally or transfer ownership to corporation.

There are pros and cons to each.  In your own hands, the earnings from the properties are added to you other sources of income and taxed at your marginal tax rate.   If the properties are owned by a corporation, they are taxed in corporation at the highest corporate tax rate - rental and investment income are considered passive income by the CRA and do not qualify for federal and provincial small business tax rates.  You would also have the additional overhead of maintaining the corporation and filing separate tax returns.

Unless you are personally in a top marginal tax bracket; need/want to bring in partners; or your business has reached the size where it has 5 or more full-time employees (which would allow a corporation to be deemed active and qualify for the small business tax rates) it may not be advantageous to incorporate.

A good primer on the subject is Steve Cohen and George Dubé's "Legal, Tax, and Accounting Strategies for the Canadian Real Estate Investor".  This will give you enough information to have the needed discussion with your accountant to plan how to structure your business now and in the future as it grows.