Real Estate


Dan from Toronto wrote to ask:

I noticed you’ve purchased an investment property that you rent out. I’ve recently purchased a new home, re-financing my existing condominium to help pay the downpayment on the new home, and also renting out the condo. The rental income from the condominium covers quite evenly the operating cost of the condo (essentially – it carries itself, which was my goal from outset).Now in speaking to an accountant, he’s telling me I should NOT have the condo in my name, that I should either incorporate, and transfer the unit to the corp (thereby resulting in Land Transfer tax), or transfer it to my spouse. Others are telling me the accountant is nuts, and that I’m fine leaving it my name and simply claiming the rental income as just that, rental income, on my tax return, and write off the interest expense as well.

Wanted to quickly ping you to determine whether you have incorporated or have all your investment property in your name? ie: rent cheques go to your name? or 123456 Ontario Ltd. etc. The accountant says that since I re-financed my principal residence and put that money into my new residence, that this is a bad thing. Others say hogwash to that! 🙂 Not sure who to believe at this point, but wanted to hear your take.

I have a condo I rent out (which is in my name, NOT in a corporation) and I’m a silent partner in owning a building (which IS a corporation, which I own 50% of).

Whether it would be worth putting the condo in a corporation or not would depend on your networth, your marginal tax rate, your risk threshold and how much income the condo is making. To get the taxes done for a corporation costs about $1K / year, so that’s going to come out of your pocket if it’s breaking even right now. Corporations are taxed more favorably, so the income would be taxed at the corp rate (25%) if you incorporated, or at your marginal tax rate if you didn’t.

Assuming you have a marginal tax rate of 40%, it would make sense to incorporate if the condo made more then $6,667 PROFIT / year (since you’d have a tax savings of 15% from incorporating, but would have a fixed cost of $1000 for having the taxes done). Since your current profit is $0, I’d be tempted to leave it in your own name. The other advantage of incorporating is to shield yourself from liability. Say your tenant tripped, broke his back and sued you for 1.5 million. If you actually have 1.5 million, you could lose everything (and it might be worth $1K / year to avoid this). Incorporating would make the rental unit a separate legal entity, and in a worst case scenario your loses SHOULD be restricted to the condo itself. I say should because its possible to “pierce the corporate veil” and make the owner liable (I have no idea how this works, just that its possible). Its also possible to get insurance as a private owner to protect against things like this.

The fact that your accountant is suggesting you transfer it to a corporation OR your spouse sounds like he’s thinking that it’s better to declare the income under someone who is earning at a lower marginal rate then you are, but it’s weird since the condo is breaking even (there isn’t much to declare).

I’d tend to side with your friends and say your accountant seems to be giving strange advice. I’d try to get a clarification from him, and if he can’t explain his thinking to you, perhaps consider finding a new accountant (I’ve used 2 accountants and was dissatisfied with both of them). Telly makes a pretty good argument that you’re best figuring out your own taxes, and just going to accountants to get specific questions answered.

Remember that the PRINCIPAL portion of the mortgage ISN’T deductible (you’ll pay tax on this at your marginal rate, as if its income), so if a reasonably large portion of the mortgage payments are going to the principle (i.e. if this is approaching $7k / year) then it would make sense to get it in someone else’s name (as your accountant suggests). It would also mean that you’re doing far better than “breaking even” (which would be a good thing 😉 ). When you pay down the principal, you put equity into the property, which is almost as good as money in the bank (and is taxed accordingly).

The re-financing to buy your new home MAY have caused problems with the rental (when you re-financed it to take money out, the interest on the money you withdrew is no longer tax deductible since you’re using it for personal reasons – buying a house for you to live in – and not for investment purposes). Who’s name the condo is in wouldn’t affect this though (unless the view was that you could make it deductible again by selling it to your spouse or your corporation).

Your accountant MIGHT be suggesting this because he wants to earn the $$$ for setting up the corporation and for doing its taxes each year (which would motivate me to find a new accountant, you don’t need people to make bad recommendations for you to generate fees for themselves).

Dan responded and said:

My lawyer gave me very similar advice to yours, his words to me were “I don’t see the benefit of incorporation for you, since you would reduce your income on the condo to zero in any event by prepaying your mortgage, thereby eliminating tax liability whether the condo is owned by you or a corporation.”

I think based on the advice I’ve received from yourself and numerous others, I’m better off doing my own taxes next year.

We covered a lot of ground on this topic, and I’m certainly not up on all the relevant laws (tax and corporate). If anyone has more information (or knows that something I wrote is incorrect), please post a comment!

15 replies on “Incorporating”


Yes, rental income is passive and you don’t get the small business rate.


You can’t reduce your income to zero by prepaying the mortgage because prepaying is paying the principal.

You can reduce your income by taking the cca, but I wouldn’t suggest that on a condo because you have to claim it all back in the recapture when you sell.


“I say should because its possible to ?pierce the corporate veil? and make the owner liable (I have no idea how this works, just that its possible). Its also possible to get insurance as a private owner to protect against things like this.”

Here’s a good explenation of the corporate veil.

Breach of Corporate Veil

“The court will, in limited circumstances, breach the corporate veil to impose personal liability for corporate acts on the directors or shareholders. The courts will do so if the corporation is a sham or used as a cloak, is formed for the express purpose of doing a wrongful or unlawful act, is a vehicle for fraud, or is an agent for the controlling operator or if a subsidiary and a parent are de facto one corporation. The controlling director or shareholder may also be liable for breach of trust or tort such as negligent or fraudulent misrepresentation and conspiracy. See George C. Glover “Directors and Officers’ Liability: Recent Developments,” in “The Business of Boards”, Canadian Bar Association ? Ontario C.L.E. Programme, April?May, 1996 at pp.58 to 76 and the cases referred to therein.”

In other words, if you don’t do illegal stuff, you are fine.

Great info, thanks all!

Q & MDJ: Could you provide more info about this passive income being taxed at a higher corporate rate for rental income? What’s the advantage of putting a rental property into a corporation if that’s the case?

CTR: So, I guess if someone were to sue you, they’d want to try to prove that you were doing something illegal… Interesting.

Thanks for the post, MDJ!

Here’s another question: if a tenant living in your premises slips and injures themselves, can they (legally) file a suit against the owner?

My concern is in terms of what kind of liability am I exposing myself to here by not incorporating? And also, my lease agreement stipulates that I am not responsible for any form of physical injury suffered within the premises (which my tenants signed off on) – is this enough to protect me?

From a liability standpoint, I would think that a lease provision attempting to shield liability would not be enforceable.

Apart from tax rates on corporations, in the US transferring property to a corporation (versus a limited liability company) is generally a bad idea because the property cannot be transferred back to the corporate owner, such as might be necessary for estate planning or other reasons, without incurring tax. An LLC will not provide any tax advantages for tax on rental income but will allow a distribution or transfer of the property to the owner(s) without tax consequence. Is this an issue there?


Liability of this sort should be covered in your insurance, unless you do something very negligent. I also agree with Mike.

As for legal actions, its a free country, anyone can sue anyone (but a judge might throw the case out if it is frivolous lol).

Mr. Cheap

The small business rate is around 20% (ont + fed, there have just been some changes to this rate, so I am not completely up on it).

The small business rate is based on net profits of less than $500,000 and that usually applies for most businesses.

However, when the corporation has passive income (investment or rental) the rate is higher (like 40%, again I would have to check).

The advantage of the incorporating comes into play if you take the CCA, or if you are planning to redevelop a property. It can also come into play if you have multiple properties).

As far as liability is concerned, most liability can be coverage (corporately or personally) through your insurance. The only issue becomes if a judgement against you is greater than your liability insurance provides.

As for a tenant slipping and falling, if it is a single family home and the tennant is reponsibile for ice and snow removal, you could not be held liable but this should be spelled out in the lease.

In a multi unit residence, there are common areas where you can be held more liable for certain mishaps.

As for piercing the corporate shield, if a director is willfully negligent, they can be held liable (i.e. corporate minutes show that a recommendation for repairing stairs, and the directors vote against it, tennant slips down stairs, etc…)


Q: thanks for the info… So I guess the “take away point” is that their isn’t a great tax reason for incorporating (its done more for legal reasons) unless you’re playing around a lot with the depreciation or doing lots of improvements?

I agree that just putting a clause in your lease saying “I’m not liable” isn’t enough (although software makers always try that with their click-through licenses).

Hey guys,

I have a rental and considered incorporating as well, but the passive income rule changed my mind.

You can use CCA with a personal rental property, no problems with that. I’ve used CCA against the property itself (buildings only of course), and the furniture inside, as I rent it furnished.

I’m always on the lookout for new tax saving strategies. I’ve got a lot of unused RRSP room, so that will help me for a few years, but after that I’m scared to think of what my taxes will be.

Hi there
I have a question … can you tell me if it would be wise for my husband and I to create a corporation and then have that corporation purchase a home , which my husband and I will then rent out from the corporation? Can you tell me the pros and cons of this? We live and work in Toronto, Canada.

Hi Happy Face: I went through a lot of the reasoning about when and why it makes sense to purchase a property through a corporation instead of as an individual in this post (and the comments), so I’d recommend reading through it again, plugging in your own numbers, and seeing what makes sense.

If you have further questions afterwards, I’d recommend talking to an accountant if you’re questions are mainly focused on tax implications of a corporation or a lawyer if your questions are mainly about liability and legal consequences (or both if your questions run the gamut).

Good luck with your new venture if you decide to move forward!

It was mentioned that incorporating may be beneficial in the instances where more than one rental property is owned. I currently own 2 and I’m looking at buying another one right now so I started questioning if I should incorporate. Can you explain why it becomes beneficial to incorporate when more than one is owned?

Interesting dicsussion here. On the same lines, I have a related question.
What are the tax implications of a private corporation buying residential property for the shareholders (employee or not) to live in?
I understand the principal residence exemption would be lost. However would there be any benefits? Would it be different if the shareholder paid a ‘nominal’ rent to the corporation? Obviously it wouldn’t be wise to claim CCA as it would be recaptured anyway. Are there any cases to shed more light on this? Would appreciate any input. Thanks.

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