Property Aquisition:Personal or Corporate?

by Celeste
(Calgary, Alberta)

When acquiring an investment property for the purposes of 'buy & flip' or 'buy & rent' is it better to purchase the property in your personal name or in a corporation?

I understand taxes on rental income in a corporation are 45% but personally they range from 25%-39% depending on the amount of income.

I have heard it is prudent to buy in the corporations name due to liability but thte taxing seems to be high.

Thanks for any insight you can offer.

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Feb 28, 2010
 RE: To Incorporate or to not Incorporate ... that is the question!
by: Tom Karadza

Hi Celeste,

Thanks for your question!

There's so much to share here that we could write a book about it!

1. CRA does consider real estate as a "passive" business and so it is taxed at a very high rate, in the mid-30% range.

2. If you own it personally then, as you state, it becomes income and you pay the appropriate average tax rate.

There are many advantages to buying using a corporation but you'll need a corporation with enough income to qualify for the mortgage. You'll also want a very good real estate accountant because there are legal and ethical ways to get that tax corporate tax rate down.

If you don't a corporation that will qualify to purchase property you may be stuck buying properties using your own name - this is very common so don't become discouraged.

If liability is a concern make sure you have at least $2,000,000 coverage on your insurance policy. With the proper insurance policy you should be able to protect yourself from most potential liabilities.

A chat with a good local accountant who knows real estate (because many claim to but few actually do) may be very useful before you begin.

Hope that helps!

Tom.

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