Do landlords need to incorporate?

Run a dental practice—start a corporation. Run a rental property business—don’t bother.

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From the April 2014 issue of the magazine.

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Aaron Vasas, Fenwick, Ont. (Jennifer Roberts for MoneySense magazine)

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


2 comments on “Do landlords need to incorporate?

  1. There are reasons to incorporate a rental business even beyond the CRA strategies. The goal of any business is to expand and a holding company is no different. The old adage ” if you are not growing, your dying” holds true. If your business model is to expand your holdings regularly, or if you plan to use leverage to acquire then you need to incorporate. By incorporating early you will avoid costly land transfer taxes twice. You are not able to transfer from person to corporation land transfer exempt. Second major reason is leverage. If you plan on leveraging your properties to buy more by utilizing a bank or lender, it is much easier to do it through a corporation as they look primarily at the income of the corporation as sustainability for repayments. If you hold your properties personally they will take into account your entire personal situation. By keeping them separate you are creating two entities. One that holds all your assets and one (you) that holds all your debt.


  2. While I agree that incorporation may not make sense here, an incorporation allows you to pay money via dividends to ther shareholders, for example kids or a spouse if they also own shares. What the author forgot to mention, too, is that you usually do not pay income taxes while holding, except when your mortgage is quite small, say less than 50% loan to value. Why is that ? Because you can depreciate the property by up to 4% a year and deduct that from taxable income which usually brings you to a zero tax rate.


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