By: Keith Uthe
Should you use a Corporation?
Should you utilize a corporation for your Investment Property? The short answer is, it depends? A longer answer, it is a decision that should involve your mortgage broker, accountant and lawyer.
The annual costs for accounting on the corporation will eat into your cash-flow at about $2K per year plus corporation set-up costs. The options for mortgage lending at "A" rates are much more limited in a corporation, so you will hit the "A" lender rental property wall much sooner. Consider your individual personal lifetime capital gains exemption as part of the choice. It may not make sense until you have a total property value of over $2-3M.
Corporation Tax Implications?
Actual future tax is unknown due to government policy changes that may occur. Tax is also
impacted by the choice of taking capital cost allowance annually or not. If you have a joint venture partnership you actual taxable capital gain will be less so consider that closely. If you are business for self the choice may be different than if you are not. If your real estate income is active (flip properties) versus passive (long term hold) this may make a difference depending on your volume of active income. You may have real estate in both personal name and a corporation depending on your financial goals and investment strategy.
Whether you wish to use the Smith Manoeuvre as part of your investment strategy should also be considered. Many people also do not read and understand what it means to sign a personal guarantee on a mortgage for a corporation. By agreeing to a personal guarantee, the business borrower is agreeing to be *100 percent* personally responsible for the repayment of the entire loan amount, in addition to any collection, legal, or other costs related to the loan. Even if you file for a corporate bankruptcy and have foreclosures on personally guaranteed corporate mortgages they will show on your personal credit bureaus. The lender will also seek recovery of shortfalls from you personally due to your personal guarantee. In Alberta, for example, standard mortgages in personal names are non-recourse so this may also be a consideration in your choice.
It is up to you to seek advice and have conversations with your trusted advisers. For further
information from me as a mortgage broker contact me here.
Keith is a Mortgage Broker with Mortgage Alliance Enrich Mortgage Group. His experience, training, and knowledge as a Smith Maneouvre Certified Professional, Certified Financial Life Professional, and Real Estate Investor, Certified Real Estate Investment Adviser is part of what he offers to his clients that they are not able to find from any other mortgage broker. His objective in every conversation or interaction is to impact that person’s life to help them towards a life of abundance.
Find Keith Uthe on LinkedIn at linkedin.com/in/keithuthe
