structuring property purchases

structuring property purchases

 

Purchases may be structured in several ways. Each method has a different effect on taxation of the purchaser, so accounting advice is helpful in determining which method is best for the purchaser.

PURCHASE THROUGH A CORPORATION

Corporate versus personal purchase is usually a tax driven
question, so accounting advice is very important. The purchaser must consider the drawbacks to corporate
purchase, including the following:

  • Depending on the marginal tax rate of an individual, the tax rate on income derived from property may be higher for a corporation.
    The capital gains tax rate of a corporation may be higher than that of an individual.
  • Incorporating a company for the purposes of purchases property will cost approximately $1,000 plus additional costs, including corporate records maintenance and accounting costs.
  • Incorporating a British Columbia company requires that there be a majority of directors resident in Canada and at least one director resident in British Columbia.
  • If the corporation is not a British Columbia Corporation, a mortgage lender may require that the company be registered in British Columbia, which will incur legal expenses as set out above.

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LIMITED LIABILITY CORPORATIONS

In order to register a property in the name of a limited liability corporation (LLC) without extra provincial registration of the LLC, the Land Title office will need a copy of the constating documents of the company showing that the LLC is empowered to hold real estate. If the LLC is not empowered to hold real estate it may be possible to change the LLC constating documents to allow it to do so.


BUYING IN THE NAME OF A TRUST

  • Buying in the name of a trust (frequently a family trust) avoids payment of probate or succession fees upon the death of the owner of the property.
  • If the purchase is going to be made in the name of the trust, the Land Title Office will require that the original trust document be filed with the Land Title Office. This makes the trust document available to the public, giving out considerable information about the beneficiaries and assets of the trust.
  • Instead of buying through a trust to avoid probate and succession fees, the purchaser may want to consider holding the property in joint tenancy. This means that more than one person’s name is on the title, and when one title-holder dies, the title passes automatically to the other joint tenant.
  • If mortgage financing is necessary, purchasing in the name of a trust may become more complex.
  • The mortgage institution may not be willing to lend to a trust, and a solicitor’s opinion letter as to the trust’s ability to enter into mortgage agreements may be necessary.

 

Information provided by Ralph Yetman

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