How to Buy a Home with Corporation in Canada?

Interested in purchasing a home in Canada? You can now buy your dream home using a corporation, there are many benefits of using corporations to purchase a home, and the reason why homeowners prefer corporations to hold properties rather than holding them personally include ease in: corporate tax returns, financing, legacy planning, and legalities amongst many more.

Can I purchase a home with a corporation?

To be fair, the answer is not as straightforward as you might think. if you have just created a new corporation with no financial past it is unlikely that you will be able to purchase a property using it, even Canadian banks are unlikely to allow you to purchase a residential investment property on a corporation, there will be a very few banks that will allow you to do so you may want to do some research and find out which ones. So in this article, we will discuss how you can purchase your home with a corporation if the banks make it so hard, one solution to this problem is hiring a competent accounting firm to help you.

Before we go on we must first understand what exactly it mean to purchase a corporate real estate.

What is a Corporate Real Estate?

If you are considering buying a home through a corporation it is important that you understand what a corporation-owned property means and what are the pros and cons of buying such a home. Corporate real estate basically means that the title of the property as legal ownership remains with the corporation rather than in a personal name. If you are considering purchasing a property with a corporation in Canada there are some factors that you must be aware of beforehand.

What to consider when buying property through a corporation?

1.      Freezing of an estate and planning succession

If you purchase property under a corporation one of its major benefits are that you can keep your estate taxes to a minimum, you can also easily pass on your estate to your family, this kind of legal title offers maximum flexibility. This is particularly useful if you are planning to extend your investment portfolios.

2.      Protection of limited liability

Buying a property under a corporation means that in case of risk liability your personal property and your vehicle will be protected, in other words, in case your corporation suffers a loss your personal assets will remain separate from your commercial assets, you can benefit from this if you plan on purchasing a commercial property.

3.      Tax benefits of purchasing with a corporation

If you own a corporation real estate 50% of the capital gains are free of tax, if you are earning rent or any other kind of capital gain from the property you must pay a tax of 50.2%, corporate tax returns add up to approximately 30.7% they can be refunded once the profits of the corporation are paid out. Corporate real estates are required to fill in a corporate tax return annually, you can choose the year end date that you wish to be the time of declaration.

Filling out the corporate tax return form can be a little tricky and also requires many supporting documents, you can get help with the completion of the forms. You must make sure you have the following documents: your expense receipts and monthly bank statements. Having these documents handy will help you complete your claim quicker in case of a review by the CRA.

You may also need some more information in order to complete your corporate tax returns this includes: your business number, your corporation head office address, your bookkeeping address and the fiscal term of your company.

How to purchase a home through a corporation?

If you follow these easy steps you can purchase a home under your own corporation and keep it for yourself without having to pay any tax and live in it.

Step One

Firstly, your corporation is required to give you a loan, tax free. It is required that the loan is written with an agreement and a mortgage has been kept in place, the paperwork will show that the home is the collateral for your loan this is only a formality that is required for the sake of paperwork as it does not seem likely that you will default the payment of your own loan.

Step Two

You are required to give your corporation an interest in exchange for the loan that has been received this interest is supposed to match the interest rate of the market, the market rate can easily be determined by checking what major banks are charging as interest rate.

Step Three

You must then determine the terms of repayment, a reasonable repayment method and time frame must be set for the return of the loan. The repayment period must reflect that of what major banks are offering on mortgages.

Step Four

If you require an employee home purchase loan you need to make sure that you are an employee at the corporation, this also means that you must be on a payroll at your corporation receiving payments on a monthly basis just like regular employees in any other firm.

By following this strategy you can purchase a home with a corporation in Canada without having to pay a tax, the strategy may sound straight forward but it is always advisable to hire a competent accounting firm to ensure its effective implementation and avoid any hiccups with CRA which may lead to the proceeds of the loan being added to your taxable income if things go wrong. Other than the above mentioned other benefits of buying a home with a corporation in Canada includes allowing you to minimize your taxes and claim corporate tax returns you can also create an efficient succession plan that will limit your personal liability if the projects you are undertaking may have an element of risk involved with them.

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