To Incorporate or Not: That is Today’s Burning Question
To Incorporate or Not: That is Today’s Burning Question

“Should I incorporate and put all of my investment properties into a corporation or should I keep them in my personal name?”

This has to be one of the most asked, and the most misunderstood, question I get asked from real estate investors. For such a frequently asked question I wish there was a simple black and white, one-size-fits-all answer.  But, sadly, there is not.  There are many, many elements and options that must be considered before making that move. I say it is often the most misunderstood because many people do not understand the negative impact of doing so (or even the real Canadian positives of doing so).  Too many hear about US based strategies including: The triangle corporate structure, or the limiting of liability, or never having a mortgage in your name.  Sounds smart, but does it pertain and really work here in Canada and does it really do all of these ‘magical’ things that so many believe incorporating does?

Here are two very interesting, and important, looks at whether incorporation is teh right choice for you. Please read BEFORE you make a move

PART 1 – A Strategic Reality Check for Incorporation:

Understanding Your Real Estate Corporation. The reality behind the myth

Starts off with: So who owns the real estate investments in your portfolio? Do you? Does someone else on your behalf (trustee)? Or does a funky government-created legal person? It makes a difference as it will determine, among other things, who has control and who can make decisions about those real estate assets. Although you might think you own something, if it’s really owned by “your” corporation, it’s legally owned by another “person”…. I suggest your read it to get al of the details

PART 2 – Should Your Corporation Own a Car for You?

This is Cherry Chan’s accounting view on whether it makes sense to purchase a vehicle within your corporation or not.  This is an excellent overview:

Purchasing a Vehicle Within Your Real Estate Corporation. Smart or not?

 

PART 3 – A Strategic Tip

There is a lot to consider and analyze before you decide whether to incorporate or not.  One thing is for sure: If you are going to incorporate, make sure you NEVER mix short term flips or short term hold properties in the same corporation as your Long-Term Hold Cashflow producing properties. The trouble that will be created in the future for tax and re-financing planning by mixing the two will lead you to migraine headaches (and probably cost you a LOT of the tax savings you were looking for!.

Get a GREAT real estate oriented accountant and a real estate oriented lawyer. Let them both provide you their insights on YOUR particular situation then make the decision from there.

 

Strategic Knowledge is the lifeblood of a real estate investor.  Stay Strategic to keep as much of your profits as legally allowed.  This book will help you do it with 81 Tips For Financial and Tax Savings for Real Estate Investors (and it is on deep discount at Amazon right now – which is a savings in and of itself ) :

 

 

To Incorporate or Not: That is Today’s Burning Question was last modified: August 18th, 2015 by Don R. Campbell
 

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2 Responses to “To Incorporate or Not: That is Today’s Burning Question”

Elias says:

August 24, 2015 at 8:38 pm

Nice article. Regarding the strategic tip I agree definitely better to have flips in a separate company especially if you’re actively doing both. An alternative is to track as a separate product or location in your accounting software, so you can produce separate financial statements for your holds and flips for both tax purposes and lenders. Have done this before as we do flips only occasionally.

 

Don R. Campbell says:

August 25, 2015 at 5:32 pm

Thank you for your comment on my blog. However, I MUST caution you that combining the two EVEN WITH the bookkeeping strategy you are using, is fraught with potential pain. Remember the tax law is all about identifying what business you are in and what the intention of the business truly is. Given how you describe your plan, it leaves it open to interpretation which in most cases will lead to capital gains tax rating being denied or dramatically reduced. Frankly, should it be like that? No. Is it like that in reality? Yes.

Hope that helps and PLEASE speak to a veteran REAL ESTATE oriented accountant.

 
 
 

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