Buying Real Estate in holding company with minors...Need advice please!
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Thread: Buying Real Estate in holding company with minors...Need advice please!

  1. #1
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    Buying Real Estate in holding company with minors...Need advice please!

    I am planning on buying a piece of real estate next two weeks. It will be property I plan to resell for a profit within 1-2 years. I will buy it in a corporation for tax and liability reasons. I was planning on making my kids which are minors, non voting shareholders. Kids ages are 3, 7, 11, 15 and 17. Most will be many years away buy the 15 and 17 year old can start taking a dividend when they turn 18. I am not sure if I plan on buying more in this corporation but my plan is to setup a holding company eventually which will control this operating co.

    What is the best way to do this? Shall I bother making the other kids shareholders (I am charged $100/shareholder to add to the corporation at setup) since I plan to sell in 2 years? Can I create the holding company after or must it be done before?

    Thanks!


  2. #2
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    So many views and no comments...please don't be shy!

  3. #3
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    What's the goal? To pass income at a tax advantaged level to the kids?

    This article highlights the passing dividends before 18 has extra tax but suggests that a reasonable wage paid to the minor may be worth exploring.
    http://www.mnp.ca/en/posts/should-yo...amily-business

    The advantage to the wage that I can think of is that it will be earning RRSP contribution room for later high income times, where minimal tax would be paid.
    http://business.financialpost.com/pe...f-your-savings


    Assuming the corporation is the main business where the RE is an investment of profits, this article says going with the holding company has benefits beyond passing dividends to the non-voting 18+ shareholders.
    http://www.theglobeandmail.com/globe...article786896/


    I would assume two companies will add to the paperwork/expense a bit.


    I would think setting up the holding company first would be better but I haven't found anything to suggest it is impossible or expensive tax wise to do the setup / transfer after the fact. This is probably worth discussing with an accountant or similar expert.


    Cheers

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    Without more details, all I see is a lot of misunderstandings about how things work...

    First off, it's very difficult to resell real estate for a profit in 1-2 years. The acquisition and holding costs, not to mention the costs to sell, usually mean 7-10 years before profits can be realized. Maybe you're talking about flipping, but then your time frame is to long.

    Next, you talk about this being an operating company, but if you are just holding properties in in, even if you are "actively" charging rents, it's still a holding company. An operating company has operations, active transactions like services or goods sold, maybe a management company, but that requires staff...

    As for your kids, they don't really need dividend income at this point, you could always make them employees after they hit a certain age (which varies by province). They can then earn up to the minimum income levels tax free.

    Setting up two corporations will double your accounting bill and may not give you any benefits. Adding your kids may, in rare circumstances, expose them to liability from a lawsuit.

    I think you need to give more details, or do some more research into what you think you are doing. As I said, from the sounds of things, you don't really seem to understand what you are doing and your assumptions seem wrong from what you described.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

  6. #5
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    Quote Originally Posted by Just a Guy View Post
    Without more details, all I see is a lot of misunderstandings about how things work...

    First off, it's very difficult to resell real estate for a profit in 1-2 years. The acquisition and holding costs, not to mention the costs to sell, usually mean 7-10 years before profits can be realized. Maybe you're talking about flipping, but then your time frame is to long.

    Next, you talk about this being an operating company, but if you are just holding properties in in, even if you are "actively" charging rents, it's still a holding company. An operating company has operations, active transactions like services or goods sold, maybe a management company, but that requires staff...

    As for your kids, they don't really need dividend income at this point, you could always make them employees after they hit a certain age (which varies by province). They can then earn up to the minimum income levels tax free.

    Setting up two corporations will double your accounting bill and may not give you any benefits. Adding your kids may, in rare circumstances, expose them to liability from a lawsuit.

    I think you need to give more details, or do some more research into what you think you are doing. As I said, from the sounds of things, you don't really seem to understand what you are doing and your assumptions seem wrong from what you described.
    Sorry it was pas midnight and maybe I didn't explain well. Yes it's for flipping. I hope to do a couple per year and have been recommended to do 3-4 max in the same company for liability. After that it's a new company. Who know's though, I might only do 1-2 since deals are not as easy to find these days. My criteria is 30-50k profit per house. If it's less than that, I won't touch it.

    So I figure if there is 50-100k in the company when my child turns 18 next year, I could give him a 20-30k dividend without any tax consequence. This will help pay for college/university or other things like deposit on first house, car, etc. I don't plan on giving the rest any dividends for years, but don't know if it's costly to add them later or if it creates any tax issues. Then again I am not sure if that particular corp will still be open by then. Can I only add them in the Holding company, transfer the money from operating corp and then pay dividends?

    Now by having an operating company and a holding company, if ever I am exposed to a lawsuit from a house I sold, can I not transfer all assets to the holding company and leave the operating company with nothing ? They would not be able to come after me since the corporation sold it. Again I don't plan on doing anything illegal or screwing anyone, but just trying to protect myself and family.

    Now the corporation I create, does the activity code change the way it's taxed or is it the operations really? For example, if I set the Activity code to Holding company instead of Real estate Investments

    Yes it would add more fees, but do I really have a choice? Maybe I am making it more complicated than it needs to be. Are there a better solutions? I
    Last edited by plaza; 2017-03-17 at 10:13 AM.

  7. #6
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    Quote Originally Posted by plaza View Post
    ... Now by having an operating company and a holding company, if ever I am exposed to a lawsuit from a house I sold, can I not transfer all assets to the holding company and leave the operating company with nothing?
    Hmm ... I thought I read somewhere that transferring before a problem, where it's somewhat on a schedule is fine. Transferring after the lawsuit was filed was trying to cheat the plaintiffs.

    I'll have to see if I can find the article.


    Cheers

  8. #7
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    Quote Originally Posted by Eclectic12 View Post
    Hmm ... I thought I read somewhere that transferring before a problem, where it's somewhat on a schedule is fine. Transferring after the lawsuit was filed was trying to cheat the plaintiffs.

    I'll have to see if I can find the article.


    Cheers
    Yes I understand that after a lawsuit has been filed, it's difficult, but I would keep the minimum in there. I was told if I ever sensed any issues from someone, it would give the chance to get the current property sold/liquidated before lawsuit is actually filed

  9. #8
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    [QUOTE=Just a Guy;1510042]Without more details, all I see is a lot of misunderstandings about how things work...

    First off, it's very difficult to resell real estate for a profit in 1-2 years. The acquisition and holding costs, not to mention the costs to sell, usually mean 7-10 years before profits can be realized. Maybe you're talking about flipping, but then your time frame is to long.

    My friend sold her house July 30 for $421,800 and on February 22 the person sold it for $597,600 ,My friend spent money on the house to sell it o all they did was add some potlights and took carpet up in bedrooms and put in hardwood floors. This house was in Courtice not Toronto .

  10. #9
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    Quote Originally Posted by plaza View Post
    Sorry it was pas midnight and maybe I didn't explain well. Yes it's for flipping. I hope to do a couple per year and have been recommended to do 3-4 max in the same company for liability. After that it's a new company. Who know's though, I might only do 1-2 since deals are not as easy to find these days. My criteria is 30-50k profit per house. If it's less than that, I won't touch it.

    So I figure if there is 50-100k in the company when my child turns 18 next year, I could give him a 20-30k dividend without any tax consequence. This will help pay for college/university or other things like deposit on first house, car, etc. I don't plan on giving the rest any dividends for years, but don't know if it's costly to add them later or if it creates any tax issues. Then again I am not sure if that particular corp will still be open by then. Can I only add them in the Holding company, transfer the money from operating corp and then pay dividends?

    Now by having an operating company and a holding company, if ever I am exposed to a lawsuit from a house I sold, can I not transfer all assets to the holding company and leave the operating company with nothing ? They would not be able to come after me since the corporation sold it. Again I don't plan on doing anything illegal or screwing anyone, but just trying to protect myself and family.

    Now the corporation I create, does the activity code change the way it's taxed or is it the operations really? For example, if I set the Activity code to Holding company instead of Real estate Investments

    Yes it would add more fees, but do I really have a choice? Maybe I am making it more complicated than it needs to be. Are there a better solutions? I
    The activity code itself won't really change anything, it's the type of income you earn that dictates how it's taxed. If you were renting out the real-estate for example, this would be considered passive income. If you are flipping, that would generally be considered active business income. Have you thought of Family Trust at all? Depending on how long you plan to keep this in place, it might be more practical then having different classes of non-voting shares of each of your children. By having a Family Trust own shares, and your kids as beneficiaries you would have the discretion to allocate out dividends to whichever kids you choose in the proportion you choose.

  11. #10
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    The holding company is your protection. The operating company your liability. The HOLDCO owns OPCO - or multiple OPCOs. The properties will be owned by the OPCO. Profits can be transfered to HOLDCO tax free since its CORP to CORP. Income will then be derived from the HOLDCO which will be taxed accordingly.

    This set-up is very costly. You need to be very active for this to be worth it. The idea is good, however it can be very risky to buy, hold and flip in today's environment. I think you can have better success if you buy run down properties, renovate and resell. But even then, its very risky if its not your domain. As was mentioned, you may be better off with a Family Trust.


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