Lease and Rental Management
Holding rental property in a corporation is a strategy that offers specific tax advantages in certain circumstances but comes with complexity and costs that must be weighed carefully. The decision depends on your total income level, number of properties, long-term plans, and professional advice from your accountant.
The primary tax advantage of corporate ownership is the small business tax rate on active business income in Ontario — roughly 12.5% on the first $500,000 of active income compared to personal marginal rates that can exceed 50%. However, rental income from one or a few properties is typically classified as passive investment income, which is taxed at higher corporate rates.
Ontario Tenancy Law
The principal residence exemption — which eliminates capital gains tax on the sale of your principal residence — does not apply to properties held in a corporation. This is a significant disadvantage for properties that might appreciate substantially and would otherwise qualify for the exemption under personal ownership.
Mortgage financing for properties held in corporations is more complex and sometimes more expensive than personal financing. Many lenders apply commercial lending criteria to corporate-held properties, requiring higher down payments and charging higher rates than residential mortgage products.
Protecting Landlord Rights
The costs of corporate ownership — incorporation, annual filing fees, accounting, legal compliance — add up. For a landlord with one or two properties, these costs may exceed the tax benefits of corporate structure. The corporate structure typically becomes beneficial at higher income levels or larger portfolio sizes.
D&D Property Management manages properties for both individual and corporate landlord clients. We work with your accountant and lawyer to ensure our management agreement and reporting are structured appropriately for your ownership structure.