Q: I have three rental properties with a total of four tenants. Should I consider starting a holding company or limited corporation for my income properties? What are the benefits?
—Aaron Vasas, Fenwick, Ont.
A: Run a dental practice—start a corporation. Run a rental property business—don’t bother. Different types of businesses are treated differently by the CRA and the tax system isn’t set up to encourage landlords to incorporate, says Hank Bulmash, a CPA at Bulmash Accounting. “Essentially they are saying, ‘We are going to tax your corporation as if you owned the properties personally.’” The corporate income tax rate for rental income is the same as the highest marginal tax rate—so there are no tax savings. The exception is if your business has at least five full-time employees. That makes it an “active business” and it qualifies for the small-business tax rate, in the 15% range. But it doesn’t sound like you have that many people on payroll. Sure, a corporate structure limits your legal liability but Bulmash recommends you minimize that risk through insurance instead. And owning the properties personally is simpler from a compliance standpoint, and will be easier for your heirs: Holding rental properties inside a corporation can lead to tax problems upon your death.
Bruce Sellery is the author of The Moolala Guide to Rockin’ Your RRSP. Do youhave your own personal finance question? Write to usat firstname.lastname@example.org