The Core Question for Landlords
Many Canadian real estate investors wonder whether they should hold properties personally or inside a corporation. The answer is nuanced — and generally not straightforward for most investors.
The short version:
- Personally: Simpler, easier financing, lower cost; 50% capital gains inclusion; principal residence exemption available for your own home
- Inside a corporation: Passive income grind on SBD; harder financing; but useful for high-volume investors, estate planning, and liability management
How Rental Income Is Taxed in a Corporation
Rental income inside a CCPC is passive income — it is taxed at the general corporate rate (not the SBD rate). The reason: rental income is not “active business income” unless the landlord provides significant services (more than just renting space — e.g., running a hotel or short-term rental with services).
| Province | Corporate Tax Rate on Passive Income | Personal Top Rate on Rental Income |
|---|---|---|
| Ontario | ~50.17% (before RDTOH) | ~53.53% |
| BC | ~50.67% | ~53.50% |
| Alberta | ~46.67% | ~48.00% |
At first glance, corporate rates look lower. But the RDTOH mechanism means much of the corporate tax is refunded when dividends are paid out — making the combined corporate + personal tax close to the personal rate. There is no outright tax savings from holding rental property in a corporation.
The Passive Income Grind: Landlords Who Also Run a Business
This is where incorporation can hurt. If your corporation also earns active business income (e.g., you are an incorporated consultant with rental properties on the side), the rental passive income counts as AAII and grinds your SBD.
| Rental AAII | SBD Reduction | SBD Limit Remaining |
|---|---|---|
| $50,000 | $0 | $500,000 |
| $70,000 | $100,000 | $400,000 |
| $100,000 | $250,000 | $250,000 |
| $150,000 | $500,000 | $0 |
An incorporated consultant earning $400,000 in consulting income and $80,000 in rental income inside one corporation loses $150,000 of their SBD — increasing corporate tax by approximately $21,000/year. Solution: separate the rental from the operating company using a holding company or by holding rental properties personally.
Mortgage Qualification: The Real Barrier
This is the most practical obstacle for most incorporated landlords.
Personal Mortgage Features
| Feature | Personal Ownership |
|---|---|
| Max LTV | 80% (insured up to 95% with CMHC, but only for 1–4 units owner-occupied) |
| Rate | Standard residential rates |
| Qualification | Rental income included in mortgage application |
| CMHC insurance | Available for investment properties up to 4 units |
Corporate Mortgage Features
| Feature | Corporate Ownership |
|---|---|
| Minimum down payment | Usually 25–35% |
| Interest rate premium | 0.5–1.5% above residential |
| Personal guarantee | Almost always required |
| Lender appetite | Big banks limited; often credit union or private |
| Debt service qualifying | More restrictive income documentation |
Over 25 years on a $600,000 mortgage, a 1% rate premium costs approximately $75,000 in additional interest. That wipes out many potential tax benefits.
Capital Gains Inside the Corporation
When a corporate-held property is sold:
- Capital gain calculated: FMV − ACB = capital gain
- Corporate tax on taxable gain (50% inclusion): e.g., $400,000 gain → $200,000 taxable → ~$100,000 corporate tax
- Capital Dividend Account (CDA) credited: $200,000 non-taxable portion added to CDA
- Tax-free capital dividend can be paid from CDA to shareholders
- Remaining after-tax proceeds can be paid as non-eligible dividend
Comparison: Sale of $800K Property (ACB $400K)
| Personally Held | Corporation-Held | |
|---|---|---|
| Capital gain | $400,000 | $400,000 |
| Taxable (50%) | $200,000 | $200,000 |
| Tax paid | ~$86,000–$100,000 personal | ~$100,000 corporate + extracting proceeds personal tax |
| CDA tax-free portion | N/A | $200,000 tax-free via capital dividend |
| Net after-tax proceeds | ~$700,000 | Comparable or slightly less due to double tax on non-CDA portion |
The CDA is genuinely valuable — but it requires first paying corporate tax on the gain, then extracting the after-tax proceeds.
When Incorporation Makes Sense for Real Estate Investors
Despite the barriers, there are scenarios where corporate ownership is justified:
| Situation | Benefit of Incorporation |
|---|---|
| Large portfolio ($2M+ portfolio value) | Liability protection, estate planning, corporate succession |
| Significant estate planning goals | Use of family trust structure for multiple LCGE claims or income splitting at death |
| No need for mortgage financing (cash buyers) | Eliminates the mortgage rate premium problem |
| Short-term rentals with significant services | May qualify as active business income (no corporate passive income grind) |
| Building a real estate business with employees | Active business income treatment, SBD eligible |
| Non-resident investors | Corporate ownership can simplify withholding tax obligations |
The Transfer Problem: Moving Existing Properties
If you already hold properties personally and want to move them into a corporation, the costs are significant:
| Cost | Amount |
|---|---|
| Capital gains tax on accrued gain | Up to 26.77% (Ontario, 50% inclusion) of unrealized gain |
| Land transfer tax (Ontario) | 1.5–2.5% of FMV (municipal + provincial) |
| Legal fees | $2,000–$5,000 per property |
| Mortgage renegotiation | Potential penalties + new corporate mortgage at higher rate |
For most landlords with appreciated properties, it is generally not worth transferring to a corporation after the fact.