Ever considered using a real estate corporation to buy property? Corporate Real Estate is having a corporation as the legal owner and on title of a property instead of your personal name(s). It’s a very popular question asked by real estate investors and it’s hard to have one answer to that question without analyzing a client’s circumstance individually. However, there are few concepts that you should be aware about when considering to purchase real estate under a corporation.

Certain types of properties such as a commercial property rented out, in general nature have a higher risk liability compared to suppose a residential rental property. By purchasing the property inside a real estate corporation, your personal assets such as your home and vehicles are protected. The one-time cost of incorporation will easily become justified if you ever encounter a lawsuit, however, it will increase your accounting fees each year. If your property has risk involved, it is definitely something to consider.

Whether you own property individually or under a real estate corporation, there is no direct tax advantage with one over the other. Just like an individual, 50% of capital gains in a corporation are also tax-free, rental profits and taxable capital gains earned inside a real estate corporation are taxed at 50.2%. Approximately, 30.7% of that tax paid is fully refundable to the company when the profits are paid out of the corporation as dividends to the shareholders. In essence, to avoid paying a lot of corporate tax, the tax system is encouraging you to withdraw the profit as dividend income on your personal return and pay personal tax just like an individual who owned real estate under their personal name would.

Many real estate investors believe they can utilize the life-time capital gains exemption of $800,000 on the disposition of the corporation’s share that owns the real estate property and even multiply it by adding a family trust, this is a misconception, the lifetime capital gains exemption only applies to the disposition of shares of an active business corporation and not a passive income corporation shares (i.e. real estate corporation).

This is one the best benefits of purchasing real estate property under a corporation. If you plan on growing a decent sized investment portfolio and would like to minimize your estate taxes and pass on property to family, corporate structures and certain elections under the income tax act offer the most flexibility. You can watch my video that talks about one of the common real estate structures that allows this. Click here:
https://www.youtube.com/watch?v=qzyLAnQytEA

A real estate corporation can really help you estate freeze to minimize your deceased taxes and allow you to efficiently succession plan. Limiting your personal liability in risky properties is also a strong factor to consider aside from just taxes. If you are looking to purchase real estate to minimize your yearly taxes, it probably is not the best solution due to the same tax treatment as an individual owning real estate. Speak with one of our tax accountants today to guide you in the right direction!