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Hi,
My wife and I own a detached house and a condo (i.e. both our names on title and mortgage). The house has been our principle residence for the last 6 years, and we have recently moved to the condo 6 month ago. The house has 3 units, and are all rented out currently. We keep the house as our principle residence for now (up to 4 years allowed as my understanding), since there is a small possibility that we might sell it in the future. We are both employed, with me being at a higher income tax bracket than my wife. I also have a corporation set up from before, and it has no activities (i.e. no revenues and no expenses). What is the best way to minimize our rental income in this case? Is there any benefit to move the properties under the corporation? The combined rental income for the house is as high as my employment salary alone. Thank you.
Hi John,
Thank you for your question. Do not transfer the house or condo to a Canadian corporation. Firstly, you cannot claim the principal residence exemption when transferring a principal residence to a corporation that you own. As a result, you could trigger a capital gain upon transfer. Secondly, Canadian corporations pay a very high rate of income tax on net rental profits (about 50%). Thirdly, land transfer tax will become payable should you sell the properties to a corporation.
Note that you can claim the house as your primary residence for the purposes of calculating the principal residence exemption upon sale, if you file an election with the CRA pursuant to subsection 45(2) of the Canadian income tax act. This election has to filed with your tax return in the year that your house became a rental property from a primary residence. This election is valid for 4 tax years.