Buying a home/condo with corporate assets?
- InvestorNewb
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Buying a home/condo with corporate assets?
Hello,
Most of the money I have saved is in my corporation. I have the majority of it invested in stock index funds, but with the remaining funds in cash, I'm thinking about using it as a downpayment on a house or condo.
If I were to purchase a home/condo under the corporation, can I also live there? Or would it be considered a rental property by the government?
Thanks
Most of the money I have saved is in my corporation. I have the majority of it invested in stock index funds, but with the remaining funds in cash, I'm thinking about using it as a downpayment on a house or condo.
If I were to purchase a home/condo under the corporation, can I also live there? Or would it be considered a rental property by the government?
Thanks
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- Norbert Schlenker
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Re: Buying a home/condo with corporate assets?
Either you pay a fair market rent to the corporation or the corporation must issue a T4 showing a taxable benefit to you.
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- InvestorNewb
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Re: Buying a home/condo with corporate assets?
How would fair market value be determined?
If I get one that is 200k, ~450 s.f., what would I pay to the corporation?
If I get one that is 200k, ~450 s.f., what would I pay to the corporation?
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- parvus
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Re: Buying a home/condo with corporate assets?
There are two things at work here. First, the corporation is buying an asset. The corporation can depreciate the asset, against expenses, and also deduct taxes and debt payments against income.
Second, what should be the income? So that's FMV for the corporation. What does a $200k, 450sf condo fetch? Let's say the corporation is buying at market prices and expects a 7% return over a 20-year amortization period. So the rent would be $10,000 a year, plus $700. That's one way to look at it. Another would be to look at local rental rates. Depending on the neighbourhood, they could be from $750 to $1200 a month.
Here's a good example. A rental building (Victorian with six units) I know of sold for $2 million, on the basis of $115k gross annual income. Let's divide by 10. So a $200k unit should fetch $11.5k annually. Granted, that doesn't account for condo fees. And it's a gross rather than a net annual income.
I'm not an accountant, lawyer or real estate analyst. But I am interested in cap rates -- the profits owners expect on their purchase. I would say 7% is reasonable (not cheap, but not expensive).
Second, what should be the income? So that's FMV for the corporation. What does a $200k, 450sf condo fetch? Let's say the corporation is buying at market prices and expects a 7% return over a 20-year amortization period. So the rent would be $10,000 a year, plus $700. That's one way to look at it. Another would be to look at local rental rates. Depending on the neighbourhood, they could be from $750 to $1200 a month.
Here's a good example. A rental building (Victorian with six units) I know of sold for $2 million, on the basis of $115k gross annual income. Let's divide by 10. So a $200k unit should fetch $11.5k annually. Granted, that doesn't account for condo fees. And it's a gross rather than a net annual income.
I'm not an accountant, lawyer or real estate analyst. But I am interested in cap rates -- the profits owners expect on their purchase. I would say 7% is reasonable (not cheap, but not expensive).
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- InvestorNewb
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Re: Buying a home/condo with corporate assets?
10k a year + 700 seems high for the amount of square footage.
My goal would be to buy it at 200k, and then rent it out to myself for as cheap as legally possible. It's one of the smallest units in the building - I was thinking maybe 500/month.
My goal would be to buy it at 200k, and then rent it out to myself for as cheap as legally possible. It's one of the smallest units in the building - I was thinking maybe 500/month.
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- parvus
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Re: Buying a home/condo with corporate assets?
Depends on where you live. In Toronto or Vancouver, I doubt such units would rent that cheaply.
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Re: Buying a home/condo with corporate assets?
Along the lines of parvus' comment, what would a 500 square foot unit rent for to an unrelated third party? There has to be a plausible range for the location and, yes, you can choose the lower end of the range, but you can't just lowball things, unless you're content to have your corporation issue you a T4 for the benefit, which is the difference between what you pay and what's FMV.
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Re: Buying a home/condo with corporate assets?
Advertise it for rent, and see what renters would offer. Document it in writing, then rent it to yourself at (say) 95% of the best offer, to account for you being a better credit risk to the corporation than an unknown renter. Very much doubt you'll end up with a $500 rent.InvestorNewb wrote:rent it out to myself for as cheap as legally possible. It's one of the smallest units in the building - I was thinking maybe 500/month.
Even better, forget about the whole idea; you're asking for trouble down the road.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
Re: Buying a home/condo with corporate assets?
Is it an option to lend the corp money to youself (personal), at the lowest rate allowed by CRA, as downpayment for the property? You personally own the property instead of via the corp. The cost/benefit would be similar, if not the same, except that by personally owning, you don't risk running foul.InvestorNewb wrote:Hello,
Most of the money I have saved is in my corporation
I am cautiously optimistic. When it goes up, I claim I have been optimistic; when it goes down, I claim I have been cautious.
Re: Buying a home/condo with corporate assets?
If your corporation owns the home/condoparvus wrote: First, the corporation is buying an asset. The corporation can depreciate the asset, against expenses, and also deduct taxes and debt payments against income.
-the corp can depreciate the asset against expenses
-the corp can deduct taxes
-the corp can deduct debt payments (there are ways for an individual with a CCPC to make debt payments deductible, without having the corp own the home/condo)
-the corp pays for the asset with $ taxed at the small business rate, which may mean that considerably less pretax dollars are to needed buy the home/condo
OTOH
-you have to pay market rent to the corp
If you own 100% of the corp, then to some extent you are paying yourself; however, the corp will pay tax on that rent
one of the advantages of personal home ownership is the tax free status of the imputed rent; you lose that with the corp
-you can't apply the personal residence exemption to the home/condo; you lose another tax advantage of personal home ownership
OTOH, if you sell the home/condo and there is a capital gain, capital losses elsewhere can be applied against that gain ; if you sell at a loss, that loss can be applied against gains elsewhere
Am I missing something? Am I wrong somewhere?
If having your CCPC own your home was a good strategy, it would likely be much more common that it is.
Re: Buying a home/condo with corporate assets?
That's the bottom line.Park wrote:If having your CCPC own your home was a good strategy, it would likely be much more common that it is.
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
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Re: Buying a home/condo with corporate assets?
I have a similar situation to the OP and have been trying to understand the implications of the following scenario:
We have funds available for the down payment on a new house in our unregistered accounts. In addition, we have some funds in our corporation, currently invested in ETFs. I was wondering if it would be possible for the corporation to buy a "portion" of the new house using the funds currently available in the corporation such that there would be no mortgage required on the corporation's portion (say 15% using an example of corporate funds of 45K on a $300K home). This portion, effectively, represents the portion of the house that would be used for its office premises. My wife and I are each 50% shareholders and we would then have the two of us sign the mortgage for our purchase of the remaining 85% of the house as purchasers and as the shareholders and directors of the purchasing corporation. This effectively reduces the amount of mortgage on the property and therefore, should, logically be more acceptable to the bank. If necessary, the corporation would also sign the mortgage documents to evidence and acknowledge that there is a mortgage on its office premises.
If necessary, can the purchase and sale deed reflect the percentage ownership of the corporation and the individuals?
If this works, it results in the deferral of the taxes that would be payable if we were to withdraw the funds from the CCPC to the time when we sell the house. In the meantime, the corporation owns its office premises and can deduct its proportion of utilities and property taxes. The one possible flaw is that we would only be eligible for a portion of the principal residence exemption down the road and the corporation would have to pay capital gains taxes on its percentage of the sale value.
Thoughts, critiques would be much appreciated.
Thank you.
We have funds available for the down payment on a new house in our unregistered accounts. In addition, we have some funds in our corporation, currently invested in ETFs. I was wondering if it would be possible for the corporation to buy a "portion" of the new house using the funds currently available in the corporation such that there would be no mortgage required on the corporation's portion (say 15% using an example of corporate funds of 45K on a $300K home). This portion, effectively, represents the portion of the house that would be used for its office premises. My wife and I are each 50% shareholders and we would then have the two of us sign the mortgage for our purchase of the remaining 85% of the house as purchasers and as the shareholders and directors of the purchasing corporation. This effectively reduces the amount of mortgage on the property and therefore, should, logically be more acceptable to the bank. If necessary, the corporation would also sign the mortgage documents to evidence and acknowledge that there is a mortgage on its office premises.
If necessary, can the purchase and sale deed reflect the percentage ownership of the corporation and the individuals?
If this works, it results in the deferral of the taxes that would be payable if we were to withdraw the funds from the CCPC to the time when we sell the house. In the meantime, the corporation owns its office premises and can deduct its proportion of utilities and property taxes. The one possible flaw is that we would only be eligible for a portion of the principal residence exemption down the road and the corporation would have to pay capital gains taxes on its percentage of the sale value.
Thoughts, critiques would be much appreciated.
Thank you.
Re: Buying a home/condo with corporate assets?
I doubt that you would be eligible for principal residence at all with that ownership structure.
That goes for OP too of course.
How does a property qualify?
That goes for OP too of course.
How does a property qualify?
Re: Buying a home/condo with corporate assets?
IMO, corporations should purchase assets for the use of the corporation, especially if you want to eventually take advantage of the sale of qualifying small business corporation shares and access the lifetime capital gains exemption. If this is the case, then 90% of the assets of the corporation must be used in the production of active business income. If there is a house/rental unit involved, then before you can access the CGE, you'll need to purify the corporation and remove excess cash/assets, probably by elections under section 85(1) and 86.
This takes lawyers time and accountants time, both of which are money. Your money. Now, our money. Like a MER, it's a frictional cost.
If you want to use money from the corporation to buy a house, you'll probably want to access is it via a housing loan agreement as specified in 15(2)(4)(b)
Also included in income will be the prescribed interest on the loan, if the housing loan is non-interest bearing. This amount won't be charged to your shareholder loan account.
Doing this way also preserves your principal residence exemption.
This takes lawyers time and accountants time, both of which are money. Your money. Now, our money. Like a MER, it's a frictional cost.
If you want to use money from the corporation to buy a house, you'll probably want to access is it via a housing loan agreement as specified in 15(2)(4)(b)
So, in your capacity as employees, the corporation may loan an amount to you for the purposes of purchasing a dwelling that you'll live in. You repay the corporation in annual installments within 30 days of the loan anniversary - failure to make a cash payment will result in the installment being debited to your shareholder loan account, and will be included in income.Subsection 15(2) does not apply to a loan made or a debt that arose
...
(b) in respect of an individual who is an employee of the lender or creditor or who is the spouse or common- law partner of an employee of the lender or creditor to enable or assist the individual to acquire a dwelling or a share of the capital stock of a cooperative housing corporation acquired for the sole purpose of acquiring the right to inhabit a dwelling owned by the corporation, where the dwelling is for the individual’s habitation,
Also included in income will be the prescribed interest on the loan, if the housing loan is non-interest bearing. This amount won't be charged to your shareholder loan account.
Doing this way also preserves your principal residence exemption.
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Re: Buying a home/condo with corporate assets?
Thank you Serdic. This is extremely helpful.
Re: Buying a home/condo with corporate assets?
You're welcome.
As to claiming some of the housing expenses in the corp, keep a list of total utilities, property tax, house repairs and maintenance, house insurance and mortgage interest. Assuming that you're using 15% of the house for office space, then 15% of the listed expenses can be claimed as "Occupancy expense" with the offseting credit in the shareholder account.
Anyways, discuss with your accountant (if you have one) if this can be claimed. Typically, it's can be done for companies with active business income - harder to justify for holdcos, and not at all possible for bare trustee corps.
As to claiming some of the housing expenses in the corp, keep a list of total utilities, property tax, house repairs and maintenance, house insurance and mortgage interest. Assuming that you're using 15% of the house for office space, then 15% of the listed expenses can be claimed as "Occupancy expense" with the offseting credit in the shareholder account.
Anyways, discuss with your accountant (if you have one) if this can be claimed. Typically, it's can be done for companies with active business income - harder to justify for holdcos, and not at all possible for bare trustee corps.
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