# incorporation - good way to save for down payment



## riamo (Jun 18, 2009)

Hello

I am a self-employed professional who is considering incorporating. from my initial calculations it seems like I could save some money. my goal is to save for a down payment right now time line is 5 years. would the incorporation be a good vehicle to save for the excess money I have and then withdraw in 5 years time?

thanks


----------



## FrugalTrader (Oct 13, 2008)

Could you show some of your calculations? It depends on your salary/marginal tax rate, how much you retain in your company every year, and if you have other family members as shareholders.


----------



## GeniusBoy27 (Jun 11, 2010)

+1 to FT. I think it depends on your marginal tax rate. If you draw a large sum out in 5 years time, you may put yourself in a higher tax rate, which may negate your benefits housing it in the corporation.


----------



## riamo (Jun 18, 2009)

i've got about 30k I can tax shelter per year in the incorporation after going through the calculations

now if invest in some vehicle for this 5 years then withdraw even if being in a highest tax bracket will I be in (which I will be in)..is it worthwhile to use it the savings in such a way?

i always here that the best thing for the money defered is to withdraw it when your retired..when you are in a lower tax bracket..but in my situation I want to have a nice big down payment for now...

p.s. I am already in the highest bracket and when when withdrawing will be as well.if i withdraw in the next 5 years

thanks


----------



## GeniusBoy27 (Jun 11, 2010)

I'm going to throw something out there for you to consider. 

Maybe it's better to buy the house from a holding company (i.e. move the cash from your corporation into a separate company) and get your corporation to rent it from your holding company. The household expenses (maintenance, mortgage interest) would be a tax deductible benefit to the holding company, and your corporation is paying your rent, and essentially writing this off as a business expense. (You'll have to write a letter from a corporation to you saying that this is part of your benefits package.)

I know this is a little complex, and I may not be explaining this as clearly as I should (sorry, I worked overnight). It's something I would talk to a CA about, but I've seen some wealthy friends do this manoeuvre. But I'm sure it could be structured to be to your benefit.

The downside to this is that you don't own the house, but your holding company does. And if you decide to sell it, you will pay capital gains tax, but the tax savings are immediate and large, and the burden isn't on you but the holding company/corporation to pay off your mortgage.

The other negative component will be the mortgage rates (without a personal guarantee, or solidifying assets), and a much larger downpayment requirement.


----------



## FrugalTrader (Oct 13, 2008)

I'm no tax pro, but if you are in the highest marginal tax rate, it might be worth your while to withdraw enough as salary to deposit into your RRSP. Then use the HBP towards the down payment. Also note that passive income earned within a corp is taxed at the highest rate which is close to 50%.


----------



## larry81 (Nov 22, 2010)

after registered account, holding company are probably the best vehicule for tax sheltering


----------



## GrossmanCGA (Feb 10, 2011)

High marginal rate + professional corporation + best tax strategies = hire a good accountant.


----------



## Cal (Jun 17, 2009)

GrossmanCGA said:


> High marginal rate + professional corporation + best tax strategies = hire a good accountant.


Agreed. Go meet with an accountant, I am sure that they will be able to best answer your questions based on your personal situation.


----------

