LLC equivalent in Canada?

Question

Hey everone

As mentioned I do have a rental property that I actually live in the basement myself(saving as much as I can). reading the forums everyone is mentioning having and LLC for the rental property and it makes sense to me. But I was wondering what the canadian guys are using to protect themselves.

also is there any proper steps you can take to save more of your money when you are going to sell your investment property(%50 of the profit is taxable).

thank you

Hadi Komeyl · Answer

Hi Shahrian,

1.In Canada we don't have LLC. The closest thing is a corporation (source). Definitely recommended if you want to limit liability.

2.Best way is to make it your primary residence. Here are some options to consider:

1., Canada revenue agency (CRA) policy states:

"If the property was your principal residence for every year you owned it, you do not have to report the sale on your return. However, if at any time during the period you owned the property it was not your principal residence, you may have to report all or part of the capital gain". (source)

2.your second option is make your corporation and buy it as if the company owns it, which allows you to write off a lot of the expenses and defer taxes, but getting a mortgage for a corporation would be hard.

3. There are lots of trade-offs, and its the last thing anyone wants to hear, but unless you are willing to learn all the details I would recommend talking to a Chartered Accountant to find out what the best structure is for you.

I had a very similar, tax related questions when I first joined, Roy N was kind enough to refer me to this book: http://www.amazon.ca/Accounting-Strategies-Canadian-Estate-Investor/dp/0470677732/ref=pd_sim_b_13.

Best of luck,

hadi

Roy N. · Answer

@Shahriar Kiamanesh

As @Hadi Komeyl mentioned, the LLC is a U.S.A. entity which lays partway between the Canadian Sole Proprietor and Private Corporation ... and sports many of the benefits of each.

As Hadi mentioned, using a {holding} company to own your properties has advantages w/r to liability.  It can also have advantages when it comes time to sell your properties.

However, the one place where it makes more sense to own a property under your own name is your primary residence.  In Canada, you do not pay capital gains on proceeds from the sale of your primary residence.  In your case, with a duplex, at the time you sell it (perhaps even to a company controlled by you), you will not pay capital gains on the portion (presumably 50%) which is your primary residence.  If your primary residence were owned by a corporation, you would be a tenant and would loose the capital gains exemption on sale.

The book referenced by Hadi above is a good starting point and will provide you with enough information to have a realistic dialogue with your accountant and council about how you should proceed in the near term and when you should look at incorporation (and structuring of corporations), trusts, etc, as your investing business grows.

Shahriar K. · Answer

Thank you Roy for your help.

Shahriar K. · Answer

Thank you Hadi for the great info. I read some info on corporation but just wanted to see what others were doing.

Since I am renting part of my primary residence not sure if having a Corporation will make any difference. but that's why I have to read more info.