One of the number one questions we get as real estate accountants from investors, after “should I incorporate?”, is “should I move my personally held real estate to a corporation?” Our clients want to know if they should be making this decision based on number of properties, amount owing, liability risk, or something else completely.
The answer is: “It depends!!!”
We could fill an entire weekend discussing when, or if, personally owned properties should be transferred to corporate ownership. In fact I co-authored a book largely on this topic!
You have to weigh many factors to make this decision, after determining where are you now, and where would you like to be in 3, 5, 10 and 20 years, then beyond. Different individuals will place different degrees of importance to the areas of flexibility, legal, taxation, financing and organization/professionalism. And your weightings typically change over time. In other words, one person may be more concerned about legal protection as compared to taxes. No answer is wrong provided that you are aware of the implications and tradeoffs. Further, advice from a tax, legal, and financial perspective are critical.
While I certainly need to talk in-depth with our clients before recommending one particular structure vs. another, here are a few general comments.
- Roughly speaking I recommend a corporate structure 80% of the time.
- There are extra costs to transferring personally owned property to a corporation, particularly if your property is in a province with land transfer tax.
- Owning one or two small properties personally typically is fine from a tax perspective.
- Most people only need a relatively simple corporate structure to start with, assuming a corporate structure is needed.
- Measure the tax savings and costs to implement a structure over a reasonable period of time as compared to the immediate cost /savings – I see too many people sacrifice significant future savings and benefits to save a few bucks today.
- Asset protection will never be perfect, which forces you to take what in your mind are reasonable measures to protect your growing assets.
- Tax savings may be immediate, down the road, or even non-existent depending on your situation.
- Talk to knowledgeable and experienced advisors who are also investors.
A significant amount of disinformation and misunderstandings exist on this topic, which is why it’s a very often asked question. I strongly believe that the vast majority of advisors have your best interest at heart, so I encourage all to discuss with an advisor who can take the time to explain why they recommend one structure vs another, and are able to reconcile the assortment of comments you may have “learned” so that a solution can be tailored to your needs for today, and for tomorrow.
George E. Dube, CPA, CA
Real estate accountant, real estate investor, speaker, author