Real Estate

Real estate holding corporations and estate planning

  • Last Updated:
  • Sep 4th, 2020 1:03 pm
[OP]
Sr. Member
Feb 14, 2005
519 posts
120 upvotes

Real estate holding corporations and estate planning

Anyone using a corporation to hold their RE portfolio and for estate planning?

Just wondering to hear opinions on whether it is worth the added expenses and potentially higher taxes.
4 replies
Sr. Member
Jan 5, 2020
542 posts
606 upvotes
There is no advantage of holding real estate in a corporation.

Investment income, including capital gains and rental income are taxed at the highest individual marginal tax rate in a corporation. Also, with the new TOSI rules, you can no longer split income with family members.

However, you may want to consider setting up a Family Trust. Not sure what your situation is but a lot of high net worth families use trusts. Not only are there tax advantages, there are also legal advantages as well in terms of control/protection of the assets in the trust.
[OP]
Sr. Member
Feb 14, 2005
519 posts
120 upvotes
So I did a bit of reading and I wanted to confirm if my understanding is correct... I'm also putting on my estate planning hat on.

For current properties under my name, if I transfer it into the trust, I will need to pay capital gains on those properties as they are transferred at FMV.
However, with a corporation, I can use the section 85 election to do so tax-free.
Therefore, with the corporation, I'm kicking the tax can down the road until I sell the property, whereas with the trust I'm paying it now. I'd rather kick the can to be honest... but you're right about the higher tax rate on capital gains in a corporation.

Rental income gets a heck lot more complicated in a trust, especially if i remain as a beneficiary.

If I do buy new property though, it sounds like buying in the name of the trust makes sense.
Jr. Member
Jul 23, 2020
103 posts
69 upvotes
Creating a holding company has no tax advantages but certainly has other advantages.
Sr. Member
Jan 5, 2020
542 posts
606 upvotes
There's really no way to achieve what you are trying to do here.

The whole point of estate planning is to transfer beneficial ownership of your assets to your children today so that any future capital gains will accrue on the children. This also prevents a huge tax bill when you die and your estate being sold to pay off the tax liabilities as you already transferred beneficial ownership. However, this does mean that you will have to pay a big tax bill today as the transfer today would occur at FMV.

Performing a section 85 rollover won't do anything. You can rollover your RE at cost but you will still own the corporation and any future gains will still accrue on the common shares that you own. You may perform a section 86 estate freeze subsequent to your section 85 rollover to tranfer common share ownership to your children. However, this transfer will occur at FMV and therefore will achieve nothing.

I highly recommend that you consult with a very good accountant that specializes in estate and trusts.

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