Having a residential rental property held by a corporation could prove advantageous in certain cases, specifically:
- Where the owner has substantial taxable income
From a tax standpoint, while it is true that the tax rates are similar (46.57% business tax rate vs. the individual’s maximum marginal tax rate of 48.2 %); this approach could make it possible to remortgage the residential rental property and ensure that the all of the interest is deductible by the corporation.
- Where the owner has low taxable income
Transferring residential rental property to a corporation reduces the taxpayer’s taxable income , and could make it possible for the taxpayer to benefit from certain tax incentives (GST/HST, child assistance, child tax benefit, reduction of the old age security pension refund, increase of certain credits based on family income, etc.).
- Asset safeguarding
Holding residential rental property through a corporation provides some protection against any actions initiated by the taxpayer’s creditors.
Transfer of personally-owned property
Moreover, you can transfer residential rental property that you currently own personally to a corporation without triggering any immediate tax impact using the tax rollover rules. At the time of the transfer, the corporation can issue a demand note to the former owner of the residential rental property equal to the cost paid by the owner for the land and building, minus capital cost allowance and the amount of the debt (mortgage) that will be assumed by the corporation. Lastly, the individual may collect, tax free, the amount of the note that the corporation will have issued on this transfer.