QUESTION:
A freind of mine and myself are interested in setting up a business in order
to buy, sell, and rent houses. We are trying to decide wether or not it
would be more beneficial for taxes to try incorporating a company or just
setting up a partnership.
I was hoping you could explain or list the tax advantages and disadvantages
both of these would provide.
Thanks,
SXXXXXXXXX
-----------------------------------
In general there are large tax "disadvantages" to being incorporated at the
start of a business because you have to put all your money in as after tax
dollars and if the company loses money, you do not get to deduct the losses
against other income.
After you get larger, there are some advantages in terms of keeping up to
$300,000 a year in most companies as retained earnings at an approximate 18%
(depending on the province) small business rate.
However, unless a real estate company has more than 5 full time employees
that are not related to the shareholders, rental real estate companies do
NOT qualify for this rate.
If you incorporate, you lose the use of your money in terms of making the
interest on other large purchases deductible. You can read more about this
in the November 2001 newsletter at www.centa.com.
In general, in "my" opinion, the only people who make money if you
incorporate, are the lawyer and accountant who set you up.
It will add anywhere from $1,000 to $3,000 more per year to your legal and
accounting bills and make your property purchases and mortgaging much
harder.
Answers to this and other similar questions can be obtained free on Air
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