Should you buy real estate through a corporation?

Another exception is if a property is owned by a corporation. A corporation is a company that is incorporated and owned by shareholders. It is a common way to do business in Canada, and it is a separate legal entity from the shareholders. Corporations file their own tax returns.

Can a corporation buy a house in Canada?

A corporation can be used to buy your home or a secondary property, such as a vacation property, but there are drawbacks. For one, you must personally pay the corporation fair market rent each year for the property or include the equivalent amount as a taxable benefit on a T4 slip to be reported on your personal tax return as income. 

The biggest drawback is that the home will not qualify as a principal residence. A corporation cannot claim a principal residence exemption like an individual taxpayer. As a result, it is hardly ever advantageous to have your corporation buy your home.

Since you can claim a principal residence exemption for a cottage or other property you use occasionally, having your corporation own it can also negate future tax savings. 

If the property is a secondary property that will also be rented out significantly—for short-term rentals, for example—there may be a better case for buying it corporately.

Should I use a corporation to buy an income property?

If you do not already have a corporation and you are setting one up solely to buy a rental property, it is important to consider the costs and benefits. The government and legal fees to establish a basic corporation may range from $1,500 to $2,500. The annual costs of legal and accounting services may be $1,500 to $3,500 or more. 

Corporations generally pay tax at about 50% on net rental income, and at about 25% on a rental property capital gain (rates differ by province or territory). This is similar to what a top-rate taxpayer might pay if they owned the same property personally. Therefore, many people would pay less tax by owning a rental property personally instead of corporately if their income is less than about $220,000. They could also avoid the cost and complexity of the corporate structure by owning personally. 

What if I intend to flip houses? 

One type of buyer who might benefit from using a corporation is someone who plans to flip properties for profit.