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Hello Mr. Madan,
We are a family based business planning to buy, renovate & flip the real estate houses. What should be the best optimize structure to set up the business?
I was think to go with:
Family Members- Trust- HoldCo- OptCo
Can you please advise?
Regards
Hi Vik,
It makes sense to flip houses through a Canadian corporation, which I will refer to as OPCO. This is because OPCO pays a low rate of income tax on profits derived from flips - 13.5%.
You could also setup a holding corporation (HOLDCO). This will provide for creditor protection of the cash savings belonging to OPCO. To accomplish this, OPCO should pay a cash dividend to HOLDCO (parent corporation, and sole shareholder of OPCO). The cash dividends paid are tax-free to HOLDCO, and are protected from parties /creditors that may make a legal claim against OPCO.
You could add a third entity - a FAMILY TRUST, as the owner of HOLDCO. However, income splitting is severely restricted through family trusts, which own family businesses in Canada, due to the new tax rules.