Contractor 路 Toronto, ON 路 Member since 2019 路 30 posts 路 3 votes
Hi,
I'm currently investing with a friend who has the property under their name. We are looking to avoid as much tax as possible as we are planning to flip. From what I gather is that incorporating allows us to pay less taxes and so we could transfer the title to the corp. But how do we get our money to use? Does it have to stay in the corp? If so do we just spend from the corp account? And how much taxes would we have to pay by selling normally vs incorporated? We are looking to continue flipping after this and we need a way to structure this.
Also, I own my own property with my wife and our house has doubled in value. I'd like to take equity out to purchase income properties but we aren't approved for it. How am I able to tap into that equity? We also only owned the house for a year so we don't have much principal paid down yet.
Real Estate Agent 路 Halifax, Nova Scotia 路 Member since 2021 路 4 posts 路 1 vote
5y
Hi Eric,
When you say "how do we get the money out to use", do you mean for investment purposes? or for personal use? (like to pay for groceries etc.) For business expenses it could be paid from your corps account.
In Canada you can "pay yourself" through two means - a salary, or a dividend. Each have pros and cons - with a salary the tax is taken up front but requires more bookkeeping for the corp. Dividends are simpler transactions for the corp but are riskier for individuals because CRA will require their income taxe come tax season, and if you haven't set money aside, it could sting you with a big bill.
There is more to it, but that's a simple answer based on my research - note I'm not a CPA, you should talk to one of them 馃榿
Real Estate Agent 路 Halifax, Nova Scotia 路 Member since 2021 路 4 posts 路 1 vote
5y
Hi Eric,
When you say "how do we get the money out to use", do you mean for investment purposes? or for personal use? (like to pay for groceries etc.) For business expenses it could be paid from your corps account.
In Canada you can "pay yourself" through two means - a salary, or a dividend. Each have pros and cons - with a salary the tax is taken up front but requires more bookkeeping for the corp. Dividends are simpler transactions for the corp but are riskier for individuals because CRA will require their income taxe come tax season, and if you haven't set money aside, it could sting you with a big bill.
There is more to it, but that's a simple answer based on my research - note I'm not a CPA, you should talk to one of them 馃榿
Specialist 路 Toronto, Ontario 路 Member since 2012 路 2k+ posts 路 891 votes
5y
@Eric Shin
I am not a CPA so you should seek advice
One thing I do know is even tho a corp owns a property you don't always save on tax during disposition.. you can still get dinged with capital gains.. its the intent.. if you plan on flipping the property then it can potentially business income especially if that's your business model and frequency.. if its a straight rental property then it's likely it will be taxed as capital gains..
business income is taxed much lower then cap gains..
For the equity takeout, there are private lenders that will loan money to you backed by the equity in your home, but it isn't cheap. Usually a home equity line of credit is your best bet to use for investment purposes, but if you cant qualify a private lender or a B lender may be your only option.
Feel free to PM me, I am a licensed mortgage agent with Dominion Lending Centres and may be able to answer some of your questions regarding this.
Contractor 路 Toronto, ON 路 Member since 2019 路 30 posts 路 3 votes
5y
@Christopher Pickup thanks for the good info. That's what I needed to know. So I guess if we pay ourselves in dividends and are responsible enough to keep money aside for taxes that would be the best option. Do you know how much tax percentage I would need to keep aside?
Contractor 路 Toronto, ON 路 Member since 2019 路 30 posts 路 3 votes
5y
@Hai Loc thanks for the response. So flipping has less taxes to be paid then buy and hold? How do I prove its business income? Also how much taxes are paid on the business incone route vs incorporated? Also, I have a renovations company and we will be don't all the work. So if I invoice my friend for the work and he can write that off to prove less profit, combined will we pay less taxes? Or will the tax's I pay for my job just equal out to being the same thing as business income on the flip?
Specialist 路 Toronto, Ontario 路 Member since 2012 路 2k+ posts 路 891 votes
5y
@Eric Shin
There is a fine line between cap gains and business income but it will come down to frequency of transactions and the intent. Intent to flip should be business income.. buy and bold will likely be cap gains..
Any kind of expense that is use for maintenance of an investment property definitely will reduce your taxable income..
Contractor 路 Toronto, ON 路 Member since 2019 路 30 posts 路 3 votes
5y
@Hai Loc thanks again for the help. The frequency of the flips, I hope, will be pretty frequent. I'm assuming turnaround times of 2 months and then on to the next one. So in your experience would that be considered business income? And for example we sell the home for 150k over what we paid for it, we have 75k in expenses (closing costs, carrying costs, material, labour) and are left with 75k profit, how much tax will I have to pay on that if I'm not incorporated?
@Hai Loc thanks again for the help. The frequency of the flips, I hope, will be pretty frequent. I'm assuming turnaround times of 2 months and then on to the next one. So in your experience would that be considered business income? And for example we sell the home for 150k over what we paid for it, we have 75k in expenses (closing costs, carrying costs, material, labour) and are left with 75k profit, how much tax will I have to pay on that if I'm not incorporated?
Disclosure is I am not an accountant. With that frequency it is highly likely to be business income. And yes all those expenses you mentioned above will reduce your net income. $150 profit - $75 expenses = $75 taxable income..
Last question is I do not want to answer as its best an accountant does but one thing I will tell you is
$400k profit as an individual will get taxed 50%
$400k profit as an Ontario # company is I believe 12.2% in 2021 under small business (Over $500k is taxed higher)
Having an Ontario # Company gives you the ability to pay yourself as an individual or dividends..