Real Estate

Using home loan from corporation for buying a house

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  • Oct 6th, 2020 3:52 pm
[OP]
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes

Using home loan from corporation for buying a house

Hi,

I am single shareholder/employee of my corporation and thinking about taking money out under home loan and putting it as downpayment on a house.
I will be paying back the interest on that loan back to my corporation. Will CRA have any problem with such set up?
41 replies
Sr. Member
Feb 19, 2019
957 posts
1208 upvotes
Stouffville ON
Possibly, I have heard opinions they CRA may have issues with non-arm length transactions. Speak to a qualified accountant.
Full Time and Full Service Realtor
[OP]
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes
senasena wrote: Possibly, I have heard opinions they CRA may have issues with non-arm length transactions. Speak to a qualified accountant.
I have spoken to few qualified accountants and they gave me different answers.
Jr. Member
User avatar
Jun 3, 2019
173 posts
138 upvotes
GTA
romsan04 wrote: Hi,

I am single shareholder/employee of my corporation and thinking about taking money out under home loan and putting it as downpayment on a house.
I will be paying back the interest on that loan back to my corporation. Will CRA have any problem with such set up?
Should be ok as long as you charge yourself the current going interest rates and have a proper contract between the corporation and yourself. The corporation would have to file the interest income
Realtor® & Mortgage Agent
Deal Fanatic
Oct 7, 2007
7948 posts
3970 upvotes
trebmember wrote: Should be ok as long as you charge yourself the current going interest rates and have a proper contract between the corporation and yourself. The corporation would have to file the interest income
I agree with this comment. Having a proper contract that reflects market interest rates (so as not to trigger a taxable benefit unless you are okay with that) and being able to show that you are following the terms of the contract in the event of an audit should allow you to do this. There should be some documentation on the CRA website or on the internet related to shareholder loans that may help fill in the gaps when it comes to details.
Sr. Member
Feb 19, 2019
957 posts
1208 upvotes
Stouffville ON
trebmember wrote: Should be ok as long as you charge yourself the current going interest rates and have a proper contract between the corporation and yourself. The corporation would have to file the interest income
Number of accountants don't share that view.
https://www.hutcheson.ca/can-i-take-a-h ... rporation/
Generally, owner managed businesses would have a very difficult time taking the “in the capacity of an employee” position for housing loans and the CRA would consider the loan a shareholder loan and include it in your income pursuant to subsection 15(2) of the Income Tax Act.



https://www.fbc.ca/knowledge-centre/cor ... ble-income
It's much more difficult for owner-managers than non-shareholder employees to take advantage of home purchase loans from their companies. Often, CRA will not accept that the owner-manager is receiving the loan because of employment rather than shareholder status, unless loans of this nature are generally available to other unrelated employees of the company, as well.

That's just from the first page of google search.
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[OP]
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes
senasena wrote: Number of accountants don't share that view.
https://www.hutcheson.ca/can-i-take-a-h ... rporation/
Generally, owner managed businesses would have a very difficult time taking the “in the capacity of an employee” position for housing loans and the CRA would consider the loan a shareholder loan and include it in your income pursuant to subsection 15(2) of the Income Tax Act.



https://www.fbc.ca/knowledge-centre/cor ... ble-income
It's much more difficult for owner-managers than non-shareholder employees to take advantage of home purchase loans from their companies. Often, CRA will not accept that the owner-manager is receiving the loan because of employment rather than shareholder status, unless loans of this nature are generally available to other unrelated employees of the company, as well.

That's just from the first page of google search.
Yes I went through the google search and saw these articles.
I am trying to find this on the actual CRA website that would state that the home loan is not available for shareholders. I am having difficulties locating this exact information.

However this link shows that I am available for home loan.
CRA Website

A home-purchase loan is any part of a loan to an employee that the employee used to get or repay another loan to buy a residence. The residence has to be for that employee or a person related to that employee. This also applies to a shareholder or a person related to a shareholder.
Sr. Member
Feb 19, 2019
957 posts
1208 upvotes
Stouffville ON
romsan04 wrote: Yes I went through the google search and saw these articles.
I am trying to find this on the actual CRA website that would state that the home loan is not available for shareholders. I am having difficulties locating this exact information.

However this link shows that I am available for home loan.
CRA Website

A home-purchase loan is any part of a loan to an employee that the employee used to get or repay another loan to buy a residence. The residence has to be for that employee or a person related to that employee. This also applies to a shareholder or a person related to a shareholder.
Few years ago I was pretty confident someone in your situation would qualify, however have been reading opinions of various accountants who disagree, hence I am not so confident anymore. With that said, just like yourself, I haven't seen anything on the cra website nor am personally aware of cases where the home loan for shareholder acting in employee capacity was rejected.
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Sr. Member
Mar 2, 2017
736 posts
1260 upvotes
Toronto
Hi OP, I've considered something similar in the past and after talking to a number of professionals in my situation it wasn't possible.

I do have to ask, do you have a sizeable amount of cash sitting in your business to do this? Depending on your setup you could liquidate a portion of the business to achieve what you are looking to do and you could qualify for the one time capital gains exemption which i believe is capped at just over 800k.

If you are looking to do this with borrowed money against the company/assets you should read through your terms carefully as you'd be breaching your debt terms. There could be a case to be made for the corp to buy the home.

Every situation is different so no one here can really advise you.
Realtor, Investor, CPA
[OP]
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes
RichmondCA wrote: Hi OP, I've considered something similar in the past and after talking to a number of professionals in my situation it wasn't possible.

I do have to ask, do you have a sizeable amount of cash sitting in your business to do this? Depending on your setup you could liquidate a portion of the business to achieve what you are looking to do and you could qualify for the one time capital gains exemption which i believe is capped at just over 800k.

If you are looking to do this with borrowed money against the company/assets you should read through your terms carefully as you'd be breaching your debt terms. There could be a case to be made for the corp to buy the home.

Every situation is different so no one here can really advise you.
I think my case is pretty straight forward and should have a simple answer as yes or no. As @senasena mentioned there are few articles online which are saying that I am not eligible but when I actually read CRA website they claiming that I am eligible.
Deal Fanatic
Apr 11, 2006
8541 posts
2969 upvotes
Mississauga
Can the corporation buy the home, and you rent from the corporation? Just a random question, I don't know if on a full scale that has any benefits to you from an overall taxation standpoint.
[OP]
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes
choclover wrote: I agree with this comment. Having a proper contract that reflects market interest rates (so as not to trigger a taxable benefit unless you are okay with that) and being able to show that you are following the terms of the contract in the event of an audit should allow you to do this. There should be some documentation on the CRA website or on the internet related to shareholder loans that may help fill in the gaps when it comes to details.
Yes, I am ok with taxable benefit and will be paying interest back to the corporation. The rates defined on CRA website are much lower than market posted rates.
https://www.canada.ca/en/revenue-agency ... arter.html
[OP]
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes
kenchau wrote: Can the corporation buy the home, and you rent from the corporation? Just a random question, I don't know if on a full scale that has any benefits to you from an overall taxation standpoint.
Not at this time, it is a cottage and I will be using it for personal pleasure.
Sr. Member
Feb 19, 2019
957 posts
1208 upvotes
Stouffville ON
romsan04 wrote: Not at this time, it is a cottage and I will be using it for personal pleasure.
Not a principal residence?
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Jr. Member
Jan 19, 2009
153 posts
31 upvotes
I would do it as a private mortgage with your corporation as the mortgagee and you as the mortgagor, not as a shareholder loan. Do it at market rates and also get an appraisal to ensure you are putting at least 20% down. You would need two sets of lawyers (conflict of interest) and the corporation should hold a lien on the property. Definitely pay more fees this way but it is legit in the eyes of the CRA.* I am not a qualified accountant.
Member
Aug 22, 2016
392 posts
206 upvotes
Do lenders accept a down payment in this form? none of the mortgage brokers I worked with in the past gave me this as an option for down payment.
[OP]
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes
hybridfx2 wrote: I would do it as a private mortgage with your corporation as the mortgagee and you as the mortgagor, not as a shareholder loan. Do it at market rates and also get an appraisal to ensure you are putting at least 20% down. You would need two sets of lawyers (conflict of interest) and the corporation should hold a lien on the property. Definitely pay more fees this way but it is legit in the eyes of the CRA.* I am not a qualified accountant.
Why do I need lawyers? To put lien on it? I am ok paying market rate for the home loan and making it look like a "mortgage".

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