Can you get a mortgage under a corporation?

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Mar 17th, 2022 8:42 am

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Mar 10th, 2022 12:52 pm

aspen300 [OP]: Member; Jul 28, 2012; 203 posts; 42 upvotes

Mar 10th, 2022 12:52 pm

Can you get a mortgage under a corporation?

A friend who works full time told me that he runs a consulting business on the side through a corporation as opposed to a sole proprietorship/contractor because his mortgage broker told him that he'd be able to qualify for a mortgage on an investment property based solely on the corporation and not his income if he runs said corp for 2 to 3 years.

Can anyone confirm this to be the case? I was under the impression the bank would still see it as a one man shop and it wouldn't make a difference. He makes roughly 50k through the corp.

11 replies

Mar 10th, 2022 2:13 pm

Nexus313: Member; Nov 21, 2018; 321 posts; 293 upvotes

Mar 10th, 2022 2:13 pm

I heard some lenders(Even top 5) let you use business income (NOA/Bank statements) to finance up to 80% value of a home. There's definitely ways to qualify yourself personally for a home using business income & not drawing income from the corp to yourself necessarily. It's typically called "Self-Employed Mortgage".

https://wowa.ca/self-employed-mortgage

+1

Mar 10th, 2022 4:26 pm

BatCountry: Sr. Member; May 31, 2017; 609 posts; 867 upvotes

Mar 10th, 2022 4:26 pm

Isn't the point of incorporating to shield your personal assets from any business liabilities?

Also, for tax purposes, wouldn't he lose the right to claim this as his personal residence and he'd be subjected to capital gains on any appreciation?

Mar 10th, 2022 4:50 pm

gc99: Sr. Member; Jan 14, 2008; 785 posts; 531 upvotes; Toronto

Mar 10th, 2022 4:50 pm

i know cibc allows this.
talk to a cibc mortgage specialist, they will take care of you

+1

Mar 10th, 2022 6:39 pm

Nexus313: Member; Nov 21, 2018; 321 posts; 293 upvotes

Mar 10th, 2022 6:39 pm

BatCountry wrote: ↑ Isn't the point of incorporating to shield your personal assets from any business liabilities?

Also, for tax purposes, wouldn't he lose the right to claim this as his personal residence and he'd be subjected to capital gains on any appreciation?

No. Tax only matters when he’s withdrawing money from the corporation. Or using funds from his corporation to buy the property. Banks will use his corporate income in addition to his personal income to qualify him.

Mar 11th, 2022 8:44 am

BatCountry: Sr. Member; May 31, 2017; 609 posts; 867 upvotes

Mar 11th, 2022 8:44 am

Nexus313 wrote: ↑ No. Tax only matters when he’s withdrawing money from the corporation. Or using funds from his corporation to buy the property. Banks will use his corporate income in addition to his personal income to qualify him.

To clarify my question on the tax...wouldn't CRA interpret this that he couldn't claim this as a personal residence because it's owned by a corporation and not him directly. So, whenever he sells the property the corporation has a capital gain on it's property investment that will be taxed...whereas if it was under his personal name it would qualify as a principal residence and not be subject to the tax.

My comment on the liability was based on the assumption that the corporation is an active business. If that business was to suffer bankruptcy, lawsuits or had financial issues then the home could then become a target as an asset of the business...and that is not necessarily the case if he owned it personally (though there are instances, I believe, where it could still happen).

+1

Mar 11th, 2022 8:56 am

DaveTheDude: Deal Addict; Mar 3, 2018; 3082 posts; 3456 upvotes; GTA

Mar 11th, 2022 8:56 am

BatCountry wrote: ↑ To clarify my question on the tax...wouldn't CRA interpret this that he couldn't claim this as a personal residence because it's owned by a corporation and not him directly. So, whenever he sells the property the corporation has a capital gain on it's property investment that will be taxed...whereas if it was under his personal name it would qualify as a principal residence and not be subject to the tax.

My comment on the liability was based on the assumption that the corporation is an active business. If that business was to suffer bankruptcy, lawsuits or had financial issues then the home could then become a target as an asset of the business...and that is not necessarily the case if he owned it personally (though there are instances, I believe, where it could still happen).

Besides the loss of principal residence exemption they are also receiving a taxable shareholder benefit by living there. Meaning a dollar amount for the benefit is determined and added to their personal income tax return.

+1

Mar 11th, 2022 9:06 am

senasena: Deal Addict; Feb 19, 2019; 1912 posts; 2988 upvotes; Stouffville ON

Mar 11th, 2022 9:06 am

BatCountry wrote: ↑ To clarify my question on the tax...wouldn't CRA interpret this that he couldn't claim this as a personal residence because it's owned by a corporation and not him directly. So, whenever he sells the property the corporation has a capital gain on it's property investment that will be taxed...whereas if it was under his personal name it would qualify as a principal residence and not be subject to the tax.

My comment on the liability was based on the assumption that the corporation is an active business. If that business was to suffer bankruptcy, lawsuits or had financial issues then the home could then become a target as an asset of the business...and that is not necessarily the case if he owned it personally (though there are instances, I believe, where it could still happen).

You are correct, you can't have a principal residence exemption if held in corporation, not to mention taxable benefits if the property is used personally.

If you are worried about the corporation being sued hold the investments in a separate holding company, from what I know you can also get a better financing rate if the investment is in holdco v opco, but you would need to confirm with the mortgage broker.

Full Time and Full Service Realtor

Mar 11th, 2022 9:32 am

jkwan18: Sr. Member; Feb 23, 2005; 958 posts; 77 upvotes

Mar 11th, 2022 9:32 am

I can chime in as a mortgage broker as well as an accountant (CPA, CA).

Tax: You can't claim the principal residence exemption on the property owned by a corporation. The use of corporations to own real estate is mostly for rental properties.

Mortgage:

1) Most lenders out there qualify you based on your personal income, even though ownership is with the corporation. Some lenders allow you to qualify using company income, but at a deep discount (eg one lender allows 40-60% net income after taxes from the corporation, in addition to money taken out as T4 or T5).

2) Most lenders do not lend to opco due to liability coming from operations. It is preferred to have a separate holding company anyways as a business owner for liability reasons.

+4

Mar 17th, 2022 3:34 am

tofubb: Deal Addict; Dec 17, 2009; 1487 posts; 1265 upvotes; Vancouver

Mar 17th, 2022 3:34 am

Based on my very limited experience.
Yes, corp and get a loan(commercial mortgage) to purchase a property.
That corp. will need to make enough to cover all monthly expenses, make higher downpayment and pay higher interest rate. They amortize the building over remaining life, not over 25/30years, even it is a residential property. Needto submit financial report annually.
Some banks allow residential mortgage under corp, if the corp is owned by human being.

Mar 17th, 2022 8:13 am

Super_Chicken: Deal Addict; Sep 4, 2005; 3582 posts; 1498 upvotes; Toronto

Mar 17th, 2022 8:13 am

BatCountry wrote: ↑ Also, for tax purposes, wouldn't he lose the right to claim this as his personal residence and he'd be subjected to capital gains on any appreciation?

You wouldn't/shouldn't do this for your principle residence.

Mar 17th, 2022 8:42 am

skyrink: Deal Addict; Nov 4, 2007; 1828 posts; 1411 upvotes; Toronto

Mar 17th, 2022 8:42 am

So if you're incorporated, to avoid getting taxed fully (personal income tax bracket) on the incoming rental income....you would need to keep 100% of the rental income within the business and spend it back into the business in some shape or form (like buying more property or improvement renovations)? I'm sure lots of people with multiple rental properties still take some of that rent to pay for personal expenses.

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