Real Estate

Can a corporation buy a vacation property?

  • Last Updated:
  • Aug 12th, 2021 8:34 pm
[OP]
Deal Guru
Mar 20, 2003
10455 posts
632 upvotes
New-Brunswick

Can a corporation buy a vacation property?

We're looking at buying a cottage through my wife's corporation where she owns all but 1 share (which is mine), is that something we should do? We have no intention on renting or anything, this is purely for us to be able to visit family and have some staycations out of the house. The intent would be to put down 25% and mortgage the rest so that we don't have to pay taxes on taking out the funds to do it outside of the corp, but are there things we need to know about?

For example I read a Moneysense article that says you can do it but you have to personally pay the corporation a market based rental income every year, is that true?
12 replies
Deal Addict
Mar 2, 2017
3213 posts
6157 upvotes
Toronto/Markham
First of all, why are you doing this? What are you optimizing for by putting it under a company vs your name?

Second, is the corporation profitable enough to be approved by a lender?

You need to talk to a mortgage broker and your accountant if this even makes sense.
Realtor®
[OP]
Deal Guru
Mar 20, 2003
10455 posts
632 upvotes
New-Brunswick
First of all, why are you doing this? What are you optimizing for by putting it under a company vs your name?
--With that we'd have no need to take out money either as dividend or shareholders loan, we're doing it purely to save on taxes.

Second, is the corporation profitable enough to be approved by a lender?
--I foresee no issues, the budget is low and it has enough funds to pay entire purchase but we don't want to do that in case of work slowing down.

You need to talk to a mortgage broker and your accountant if this even makes sense.
--That is next on the table, I was just concerned from the MoneySense article about having to pay corporation to "rent" the property for our own use.
Deal Addict
Feb 19, 2019
1769 posts
2713 upvotes
Stouffville ON
Yes you can do it.
Should you do it is another story, that's where talking to your accountant comes in.
You will either need to pay market value rent or will be dinged with taxable benefits.
Full Time and Full Service Realtor
Deal Fanatic
Oct 7, 2007
9193 posts
5047 upvotes
Need to be mindful of the tax implications. I would do more research before going ahead with this if you intend to use the property personally.
Jr. Member
Jan 27, 2021
175 posts
74 upvotes
since its owned by a corporation you have an HST registration number right?
when you go sell the property your going to have to charge HST on top of the selling price i beleive.
Member
Dec 5, 2017
265 posts
241 upvotes
What's the likely hood of the corporation being sued? What business does the corporation do?
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
Why would you want to just to save a few dollars on taxes on 25% that's may only be enough to offset a taxable benefit for 2-3 years?

Talk to an accountant and have them do a sample calculation of what the implications to you would be upon the corporation selling the property and distributing the proceeds to you.
Deal Addict
Mar 30, 2017
1182 posts
934 upvotes
supposedly you need to pay rent to the corp for using the cottage, or it becomes taxable benefit. but how cra can catch you is another question.
suppose cra can see increase in RE holding on your balance sheet and see no increase in rental income/decrease rental expenses and flag it.
but if you do report it properly, like to give a thousand or so $ of rent for half/a month to rent it every year, I assume the cottage will be cashflow negative and will incur loss, should work out to be tax saving for you and corp. that cra cant really know if you indeed use it for half month only lol
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎
[OP]
Deal Guru
Mar 20, 2003
10455 posts
632 upvotes
New-Brunswick
Sounds like there are a lot more negatives than positives to this... the government wants its taxes and will find a way to get it!

Let's see about a different approach then, can the corp buy a piece of land and we sign a 50 year lease for 1$ a year to use? Then if we get too old and can't maintain it then we buy the land from the corporation and sell it with cottage and all.
Deal Addict
Mar 3, 2018
3017 posts
3380 upvotes
GTA
seatiger wrote: - supposedly you need to pay rent to the corp for using the cottage, or it becomes taxable benefit.

- but if you do report it properly, like to give a thousand or so $ of rent for half/a month to rent it every year,
CRA doesn't calculate the benefit on cottage rental rates for a couple of weeks the OP might use it. It calculates the taxable benefit on the expected return the cottage would have made on that invested capital instead. For example if the cottage cost $500K the taxable benefit would be how much the corporation normally would have returned each year on $500K if it was invested capital. So that would make the benefit like 10 to 15% of $500K each year that the OP needs to add to his personal income unless they pay that $50K to $75K back as rent.
Deal Addict
Mar 30, 2017
1182 posts
934 upvotes
DaveTheDude wrote: CRA doesn't calculate the benefit on cottage rental rates for a couple of weeks the OP might use it. It calculates the taxable benefit on the expected return the cottage would have made on that invested capital instead. For example if the cottage cost $500K the taxable benefit would be how much the corporation normally would have returned each year on $500K if it was invested capital. So that would make the benefit like 10 to 15% of $500K each year that the OP needs to add to his personal income unless they pay that $50K to $75K back as rent.
not necessary, OP doesnt have to be the exclusive user of the cottage. Especially if corp make an effort to post an ad or two to advertise for short term rental thats solicit for rent.

Otherwise all the corps that own investment properties are going to charge their shareholders taxable benefits? that doesnt make sense and I have never seen CRA argue/assess that way. I only seen CRA assess taxable benefit if corp is providing lodging on its own property thats exclusive and available only to certain group of people such as employees.

heck, the corp can also claim that the cottage is vacant(not saying OP should claim this if he indeed lives there) all the time and is just holding for investment purpose only. CRA wont have any proof to argue otherwise.
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎
Deal Addict
Mar 30, 2017
1182 posts
934 upvotes
Feneant wrote: Sounds like there are a lot more negatives than positives to this... the government wants its taxes and will find a way to get it!

Let's see about a different approach then, can the corp buy a piece of land and we sign a 50 year lease for 1$ a year to use? Then if we get too old and can't maintain it then we buy the land from the corporation and sell it with cottage and all.
no, thats even worse. $1 lease clearly indicate non-arm length relationship. and by itself is proof corp is not benefactor.

The cleanest way is to only use capital from the corp. if corp needs extra capital, borrow it from bank, or at least borrow it from shareholders ahead of time.
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎

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