Whether you should incorporate your rental property business depends on your income level, number of properties, province of residence, and long-term goals. Generally, incorporation makes sense when your net rental income exceeds $50,000 annually, you own multiple properties, or you want to defer income and build retained earnings. However, incorporation also brings higher accounting costs, more complex tax filing, and potential complications when selling properties. Many Canadian landlords find that sole proprietorship or a partnership structure works perfectly fine for one or two rental properties, while those running larger portfolios benefit from the tax deferral and liability protection that a corporation offers. Incorporation creates a separate legal entity to hold your rental properties. This structure offers several potential advantages: Tax deferral - Corporate tax rates are often lower than personal marginal tax rates, allowing you to reinvest earnings and defer personal taxation until you withdraw money Income splitting opportunities - You can pay dividends to a spouse or adult children who are shareholders, potentially moving income to lower-income family members Estate planning - A corporation can be easier to transfer to heirs compared to personally held properties Liability protection - The corporation is a separate legal entity, which may protect
It depends on your income level and goals. Incorporation is typically better if you earn over $50,000 in net rental income annually and want to defer taxes and reinvest profits. For one or two properties with modest income, sole proprietorship is usually simpler and cheaper because the accounting costs outweigh tax savings.
Yes, you can transfer personally owned rental properties into a corporation, but this is a complex transaction with tax implications. You may trigger capital gains tax on the transfer, and you'll need to update your mortgage and insurance. Consult an accountant or tax lawyer before doing this.
Incorporation costs typically range from $500 to $2,000 for setup, plus $1,500 to $3,000 per year for accounting and tax filing. You'll also face higher legal and administrative costs compared to sole proprietorship, which is why it only makes financial sense if you have significant rental income.
Capital gains tax applies the same way (50% inclusion rate in 2024-2025), but a corporation may owe corporate tax on the gain first, then you'll owe personal tax when you withdraw funds as dividends. This double taxation can make selling a corporate-held property more expensive than selling a personally held one.
Yes, if your spouse is a shareholder in the corporation, you can pay dividends to them, which moves income to a lower-income earner and reduces your overall family tax bill. This strategy only works if your spouse owns actual shares and is a legitimate part owner of the business.