My_question_is: Canadian-specific
Subject: Transfering Property into Corporation from Partnership
Expert: taxman at centa.com
Date: Monday February 20, 2006
Time: 09:13 AM -0800
QUESTION:
With my father passing away last year, 100% of the rental income of $70K
(gross), $50K will fall on my mother alone now. This, combined with her
transferred pension and other rental income of $20K will put her in the
highest tax bracket. Previously, my father and mother would share (somewhat)
equally in this tax burden. What can I do to minimize her taxes for now and
in the future? Should I transfer the rental properties into a corporation?
And will this allow me to take advantage of the capital gains exemption on
small businesses? Thx.
========================================================
david ingram replies:
A rental property corporation will pay MORE tax (if done properly) as a
combination of corporation tax and dividends than your mother will pay on
her own.
Notice that I said, "if done properly". A Holding company with rental
properties is NOT entitled to the small business deduction or the $500,000
Capital Gains deduction.
However, the CRA does NOT do a good job of catching this situation right
away so all sorts of people are living in a dream world which explodes when
the higher tax bill arrives three or four years later.
Again, really good advice is needed.
And remember (sorry guys) that the lawyer and accountant consulted ALWAYS
make much more money when you incorporate.
An exception to the higher tax bill for corporations with rental property
exists when the corporation has FIVE FULL TIME Employees who are not related
to the shareholders.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
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