Incorporating / Asset Protection in Canada

3 Replies

To any Canadian Real Estate Investors, just wondering if you have any recommendations/tips, on whether or not I need to incorporate to protect my real estate portfolio.

I hear a lot of the American investors say, don't own properties in your own name, and it is quite easy to setup an LLC, or S-corp series to protect assets (and get tax benefits).

I don't hear a lot from a Canadian perspective however. Any advice would be greatly appreciated!

Brent

It’s recommended. Do people do it? Players with deep pockets yes but for the average joe not really. The challenge is getting financing with the corporation you intend to use. If you paying cash no problem. But when you apply for a mortgage with a newly set up entity it won’t be easy.
Commercial properties most likely will be owned by a Corp but I see the odd one owned by personal name. And the opposite for residential rental mostly personal name.

@Brent Brockerville

There are many reason why one may choose to hold their investments in a corporation in Canada (risk sharing, pooling capital, income splitting), but asset protection would not be top of {my) list.  We remain a far less litigious society then our neighbours and unless your have a very risky venture in another part of your life a good insurance policy will be more valuable than holding your assets in a corporation.

There is more overhead (separate financials) and you pay a high tax rate with a passive corporation ... unless you are personally already in a top income ta bracket bracket (or your rental income would push you into one), you may well be better off starting out holding the properties in your own name.

I would make a bullet list of your near and mid-term objectives and then sit down with an accountant and attorney familiar with real estate and chart an ownership strategy to fit your business plan.

I have the same question as well. I am very concerned about limiting liability. At this time, I am planning to buy only one property in Ottawa where I would live in 1 room and rent out the rest (probably by the room and to students). I might buy a second property down the line to rent out. I was originally from the US, where I owned real estate through an LLC and once had a friend who turned out to be a terrible tenant who stopped paying rent, harassed me mercilessly, and kept threatening to sue me for millions of dollars. Thus I am a bit paranoid about limiting liability should I ever have another awful tenant like that.

So I have been considering whether to form a corporation to own my next property. I found the blog of this person who advocates a 3 tier system, where individuals would own a property holding company, which would own an operating company that carries out the property management, as well as separate companies that own each individual property.
http://www.businessgrowthstrategies.ca/448/kelowna...

Now I think this is overkill for just one property, and the writer does acknowledge it's best for people who plan to own multiple rental properties. If I form a corporation, I think I would just form one for owning and operating my one property.

However, if it's possible to get insurance for a reasonable price that would adequately protect my non-real estate assets, that would be great, as there do seem to be negative tax consequences to owning rental real estate through a corporation, between being taxed at the highest tax bracket and not getting any principal residence exemption on capital gains when selling the property. Not to mention the extra paperwork and accounting, and for me, additional hassles on the US tax side because I am a US citizen living in Canada.

Does anyone have recommendations on insurance companies and the type of policy someone in my situation should get? I would be owning a house in Ottawa that I would rent out aside from one room or a basement that I would be living in. I do have substantial assets outside of my planned real estate, although almost all are in the US (would the fact that most of my assets outside of real estate are not in Canada shield them should a vengeful tenant here in Canada sue me and win? or are a person's worldwide assets subject to collection if they have a judgment against them individually?)