Purchasing a Home Through a Corporation in Canada

If you’re a business owner considering buying a home using your corporate savings, there’s a way to do it without incurring a hefty personal tax bill. Here’s a simplified guide: 

• Setting Up a New Corporation: Begin by incorporating a Canadian company, either federally or provincially. This company can be named, for instance, “House Inc.” You or your family members can be the shareholders. 

• Tax-Free Loan: Transfer funds from your existing company (let’s call it “Money Bags Ltd”) to House Inc. as a tax-free loan. 

• Interest on Loan: An annual interest rate of 1% should be charged on this loan, aligning with the Canada Revenue Agency’s prescribed rate. House Inc. must pay this interest to Money Bags Ltd. annually. Ensure you have a loan agreement or promissory note to detail the loan’s terms. 

• Using the Loan for Home Purchase: House Inc. can then use the loan’s proceeds to either construct or buy a new home. 

• Securing Additional Funds: If House Inc. doesn’t have enough funds from the loan to cover the home’s entire cost, it can secure a mortgage from a Canadian bank. For instance, if the home costs $1,000,000 and House Inc. has $400,000 from the loan, it would need a $600,000 mortgage to cover the difference. 

• Paying Rent to House Inc.: Once House Inc. owns the home, you’ll need to pay monthly rent to the corporation. House Inc. will then pay corporate income tax on the rent after deducting relevant expenses. 

It’s worth noting that getting a mortgage for a corporation, like “House Inc.”, can be challenging with Canadian banks. If you face this issue, consider securing a personal mortgage and buying the home in your name. However, draft an agreement stating that House Inc. is the beneficial owner, and you’re holding the home in trust for the corporation. Also, set up a loan agreement between you and House Inc. for the personal mortgage, with House Inc. repaying you in installments.