# New rental property: should we incorporate?



## bds (Aug 13, 2013)

Situation:

My partner and I are purchasing a rental property that will be duplexed and rented out, we have no intention of living in it.

I own our primary residence in my name, she is not on it. The rental property is both of ours. Primary residence is worth ~400k, we are buying the rental property for 330k.

We each make about 75k/year, I am an employee, she is self-employed.

Our lawyer has suggested we look into incorporating because it may have some advantages, this is something I do not know much about.

What are the pros and cons of incorporating, and is it a good idea for us?

Thanks.


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## tygrus (Mar 13, 2012)

Rental income is taxed at a higher rate in a company. Difference is about 3%.


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## OnlyMyOpinion (Sep 1, 2013)

bds said:


> Situation:My partner and I are purchasing a rental property that will be duplexed and rented out, we have no intention of living in it.


Is it being "duplexed" with the appropriate development permits and zoning change approval in place?


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## heyjude (May 16, 2009)

saxena123 said:


> The first human thing is being a Home. Which is to be secure and safe for our family. It is based in that things. So we are support to this schemes which is given by Indian Government Home is an part of his life.
> :apathy:


Saxena, your post refers to Indian policies on residential property. It is completely irrelevant to the OP's question.


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## bds (Aug 13, 2013)

OnlyMyOpinion said:


> Is it being "duplexed" with the appropriate development permits and zoning change approval in place?


Yes, we are planning to do everything properly with permits. There are a few other properties in the neighbourhood that have the same setup so it should be do-able.

Out of curiosity, how would it change things if we were to do it without permits?


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## Just a Guy (Mar 27, 2012)

Without a permit you can be shut down, have to pay the rent of any current tenants that need to be rehoused, fined, pay to have everything redone and inspected...but that's a worst case extreme. Many places run fine for years without permits. Personally, I've seen both cases happen to people I know. Better to have the permits.


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## Mukhang pera (Feb 26, 2016)

bds said:


> Yes, we are planning to do everything properly with permits. There are a few other properties in the neighbourhood that have the same setup so it should be do-able.
> 
> Out of curiosity, how would it change things if we were to do it without permits?


OnlyMyOpinion alluded to zoning. Things can get really ugly if you duplex a house in a single-family zoned neighbourhood. You can be required to return the building to sf, which will include tearing out any second kitchen installed.


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## Just a Guy (Mar 27, 2012)

Unless you know ways around it...like changing the stove plug to a dryer plug, no longer a second kitchen. No law against a downstairs sink, nor a second fridge...


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## StayThirstyMyFriends (Jul 29, 2016)

W.r.t. the original question about incorporation or personal, you might find this article interesting:

http://www.smythecpa.com/wp-content/uploads/2013/09/Personal-vs-Corporate-Ownership1.pdf

(this one has a similar story but it less complete than the above memo IMO)
http://www.liveca.ca/whats-the-best-way-to-purchase-an-investment-property-canada/

Sounds like there is very little difference, and so no justification of the additional overhead of a corporation unless there are other factors (like legal ones that your lawyer might mean). Also some situations might make it make more or less sense (such as using pre-tax dollars if you already have a holding company with money in it).


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## amack081 (Jun 23, 2015)

StayThirstyMyFriends said:


> W.r.t. the original question about incorporation or personal, you might find this article interesting:
> http://www.liveca.ca/whats-the-best-way-to-purchase-an-investment-property-canada/
> 
> Sounds like there is very little difference, and so no justification of the additional overhead of a corporation unless there are other factors (like legal ones that your lawyer might mean). Also some situations might make it make more or less sense (such as using pre-tax dollars if you already have a holding company with money in it).


While the premise of the Liveca article is correct, the following paragraph has many fallacies:



> [/If you’ve got lots of dollars built up in a holding company, buying real estate through your company may be the way to go. When you buy an asset within a company, you’re using pre-tax dollars. That means that you haven’t paid any personal tax on that income yet.
> 
> For example, suppose your company earns 500K. At a corporate tax rate of 15%, that leaves you with 425K to invest in a property purchased within the company. Since you’ve left that money in the company, it’s considered pre-tax.
> QUOTE]
> ...


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## bothsides (Feb 4, 2017)

amack081 said:


> Also, you wouldn't want to have the holding company owning the property. The best way to reduce taxes from a corporate level would be to have a corporation run operations and have any income flow up to the holding company by way of dividends. This way the operating company would receive refundable part I tax.


To make sure I am following. Are you saying the option is to own the property personally but then incorporate the property management side or have two separate corporations? One owns the company the other runs it? Can you elaborate on this response?


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