Rental Property Investor · London, Ontario · Member since 2019 · 40 posts · 10 votes
I listed to many BP podcast and over and over again, I hear them saying that they buy property under a different and NEW LLC and they have another service LLC to rent the unit to "protect" themselves.
All the local investor that I talked to, buy properties under their own name.
My question is, when do you buy properties using a corporation in Canada? Does it work the same as USA?
A rollover of personal property into a company under Section 85 is a fairly straight-forward process. It will take a little advance planning with your accountant and you will want to be upfront of your plans with your lenders. You will still incur costs (legal fees, re-registering title, etc), but there will be no deemed disposition at rollover.
IMHO any inconvenience and costs of a section 85 rollover are still outweighed by the extra overhead and operating costs of an early incorporation. However, everyone's situation is different and this would be part of the upfront planning performed with your accountant before you go shopping.
Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
6y
When you own properties under your own name you are liable for all the properties under your own name. When its under a corporation you are only liable to the assets the corporation owns. Its the same in Canada but you have to make arrangements with your lender that your corporation will be owning the subject property
When you own properties under your own name you are liable for all the properties under your own name. When its under a corporation you are only liable to the assets the corporation owns. Its the same in Canada but you have to make arrangements with your lender that your corporation will be owning the subject property
I'm not 100% how Canadian corporation works since all the material that I study is based in US. Do you suggest to buy using LLC in canada? Is it more expensive (Tax)?
LLCs do not exist in Canada {It seems to me we have already had this exchange on a prior thread}.
Your decision of "if" and "when" to hold you real estate in a corporation will depend on a few factors:
your present personal income and tax situation;
your other investments and wealth;
the source of the capital to fund your acquisitions;
whether you plan to have partners or not;
the size and scale of your initial acquisitions
etc...
My recommendation is to sit down and draw-up a list (bullet form is sufficient) of your near, mid and long-term goals for real estate investing. Once you have your list, find an accountant - and possibly an attorney - who is experienced with real estate and spend a few hundred dollars to have them assist in flushing out a plan that meets your present needs, but that can evolve to also meet your long-term goals (while mitigating your tax exposure along the way).
For most folks, unless you are in already in a top tax bracket, you will be better off (tax wise) to hold the properties in your own name. If you are the sole owner of the properties, than you can roll them into a corporation - in which you are the sole owner - at a later date with no big tax exposure (your accountant will explain this).
The answer to your question depends to some extent on what you're trying to achieve. There are certainly asset protection benefits from buying in an LLC, but for a Canadian, there are tax implications.The CRA does not recognize an LLC as a flow through entity and you will therefore likely find yourself paying taxes twice. There's a lot of smart people on this site, but they can't replace good professional advice geared to your specific goals. Seek some tax advice from good cross border accountant for your options.
Real Estate Investor · Austin, TX · Member since 2016 · 114 posts · 49 votes
6y
Canada also doesn't have flow-through corporations such as an S-Corp designation.
A corp WILL help, to an extent, for asset protection, and there are lenders who may allow title in the corp name (though I'm not sure if they'll allow it immediately in a corp name or once the corp has been around a few years).
What you have to watch for: 1) As it isn't a flow-through entity, you can't offset losses against personal income.
2) Corporate taxes will come into play, or dividend taxes (this is different than in the US)
3) Insurance will be in the corp name (though not an issue usually)
4) If you're paying expenses, you'll need to use the corp account or cash, or a corp card (or small business card just for the corporation). You do NOT want to mix expense accounts.
As Roy said, sit down with an account who has experience with corporations and rental properties, and make sure it's the same type you're looking at (multifam, Single fam, etc).
When you own properties under your own name you are liable for all the properties under your own name. When its under a corporation you are only liable to the assets the corporation owns. Its the same in Canada but you have to make arrangements with your lender that your corporation will be owning the subject property
I'm not 100% how Canadian corporation works since all the material that I study is based in US. Do you suggest to buy using LLC in canada? Is it more expensive (Tax)?
Just a reminder that BP education is US based. LLC does not exist in Canada. From my experience it is easier to transfer personal name to entity in US then it is in Canada when lender is involved
You’re going to be signing a personal guarantee anyway. General rule, it doesn’t make sense to use a corporation unless you’re buying with partners or a larger asset like a 12 unit or similar. Go read the BDO blog, they’ve got great info on this that goes from beginner to high level.
A rollover of personal property into a company under Section 85 is a fairly straight-forward process. It will take a little advance planning with your accountant and you will want to be upfront of your plans with your lenders. You will still incur costs (legal fees, re-registering title, etc), but there will be no deemed disposition at rollover.
IMHO any inconvenience and costs of a section 85 rollover are still outweighed by the extra overhead and operating costs of an early incorporation. However, everyone's situation is different and this would be part of the upfront planning performed with your accountant before you go shopping.