Need Advice
Moderator: Mark T Serbinski CA CPA
By moving property into a CND corp there is a deemed disposition but as you say the principal residence can help. Buying a new property in the corp right away will allow you to exempt the departure tax since shares held in a corp that consist primarily of Real Estate ( 90% or more share the same benefits as real estate and are not taxed on departure)
However, it is never adviseable to hold real estate in a corp due to the tax implications as already stated you can not claim the corp is a Canadian resident corp since you will be deemed to be a non resident thus the corp is also denied the CCPC status and this not only applies to the income it also applied to witholding tax, faiure to remit the NRT on the rent is also something that you as a director are personally liable for per Sec 215 ITA.
So if buy a property do yourself a favor do not use a corp do it in your name and do the witholdings.
However, it is never adviseable to hold real estate in a corp due to the tax implications as already stated you can not claim the corp is a Canadian resident corp since you will be deemed to be a non resident thus the corp is also denied the CCPC status and this not only applies to the income it also applied to witholding tax, faiure to remit the NRT on the rent is also something that you as a director are personally liable for per Sec 215 ITA.
So if buy a property do yourself a favor do not use a corp do it in your name and do the witholdings.
JG
Thanks very much for your feedback so far.
Why would the corp be a foreign corp if I own it 50% and my resident partner also owns it 50%?? Under Ontario corporate law, a corporation is resident in Canada if a majority of its directors are also resident, and if there are only two directors, only one has to be resident in order to retain residency status.
Also, not concerned about the 30% corp tax rate - i will be in the highest personal income tax bracket anyway.
Why would the corp be a foreign corp if I own it 50% and my resident partner also owns it 50%?? Under Ontario corporate law, a corporation is resident in Canada if a majority of its directors are also resident, and if there are only two directors, only one has to be resident in order to retain residency status.
Also, not concerned about the 30% corp tax rate - i will be in the highest personal income tax bracket anyway.
JCGA is talking about CCPC.
Your corp would be Cdn, but not CCPC. And in eyes of IRS it would be Cdn as well. Worst of both worlds.
Forget corp for buying a house, it just doesn't work for your purposes.
Your corp would be Cdn, but not CCPC. And in eyes of IRS it would be Cdn as well. Worst of both worlds.
Forget corp for buying a house, it just doesn't work for your purposes.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
http://www.cra-arc.gc.ca/E/pub/tp/it458r2/it458r2-e.pdf
The definition of CCPC clearly forbids any non-resdient control.
You may not care about CCPC, but your Cdn residnet partner(s) might.
The definition of CCPC clearly forbids any non-resdient control.
You may not care about CCPC, but your Cdn residnet partner(s) might.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Correct, the issue of CCPC will not be met if you are a US resident. However remember one thing holding real estate in a corp you do not qualify for the small business tax rate anyhow since the income generated form the rental of the homes is not active business income so forget about the 15.% corp tax rate or the basic 28.25% corp 2011 tax rate for Ontario your looking at 46.42% Investment income . Then if you want to lower this down to say 19.75% you have to take a taxable dividend to recoup the refundable dividend tax rate ( the penalty tax basically for earning investment income in a corp unless you dividend out to shareholders you are paying this penalty tax and its only refunded to the extent of $1 for every $3 paid in dividends)
Exception if you have more than 5 full time employees then you would qualify for the basic tax rate of 28.25 but you must be a qualifying business to get the 15.5% small business rate .
Exception if you have more than 5 full time employees then you would qualify for the basic tax rate of 28.25 but you must be a qualifying business to get the 15.5% small business rate .
JG
The CCRA bulletin says that 50% resident and 50% non-resident controlled private corporations are fine. On the corporate side, the tax rate on property income will be levied by the CRA at 30% - there won't be any US govt tax on this, because the corporation is not resident in the US.
I won't have personal income from the corporation unless i issue dividends to myself - which I don't plan to do. The corporation will issue dividends to the other shareholder, who is a cdn and will be subject to canadian taxes on those dividends.
My partner actually owns 50% of the underlying assets in the corporation. This should satisfy the control test for the CRA and CCRA. Why would this not work?
I won't have personal income from the corporation unless i issue dividends to myself - which I don't plan to do. The corporation will issue dividends to the other shareholder, who is a cdn and will be subject to canadian taxes on those dividends.
My partner actually owns 50% of the underlying assets in the corporation. This should satisfy the control test for the CRA and CCRA. Why would this not work?
Have you filed foreign corporate returns in US?
It is just not worth it.
What info have you been told that made you think it was a good idea?
It is just not worth it.
What info have you been told that made you think it was a good idea?
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
If you say that you meet the CCPC requirements and have investment income because you are saying the controll exists due to de facto control ( your partner owns 50% of the underlying assets) and not due to de jure ( actual 50/50) then you are a CCPC the investment income is taxed at 46.42 % not 28.25% the only way to get it down is pay pay dividends.
Will your partner be happy to receive all the dividends and pay tax on them so the corp will reduce its tax rate to 19.75%? Who will pay teh difference?
Another point if you plan to only pay dividends on one class of shares and not the other ( ie yourself no dividend) then this is also looked on by the CRA to establish control so you will always be a CCPC and you can not avoid the refundable tax.
Will your partner be happy to receive all the dividends and pay tax on them so the corp will reduce its tax rate to 19.75%? Who will pay teh difference?
Another point if you plan to only pay dividends on one class of shares and not the other ( ie yourself no dividend) then this is also looked on by the CRA to establish control so you will always be a CCPC and you can not avoid the refundable tax.
JG
You are right it will be extremely complex - my concern is simply with record keeping, because my partner has a right to 50% rental income but we have different deductions in respect of the same properties and I don't want this income to be improperly taxed in my hands and subject to the CRA withholding tax. I think I can accomplish this with an unincorporated business structure as I have been doing this long anyway. I appreciate your advice, thanks again.
Consequences of not being a CCPC
What are they? How would a Cdn corporation that is not a CCPC be taxed on investment income (rental income from real estate, passive)? Assuming a dividend to one shareholder only of about 50% of the corporation's net income, and retention of the rest of the income within the corporation as a reserve/to pay costs...
Thanks
Thanks