Can a corporation buy a house in Canada?

If you’re an entrepreneur considering using your company’s funds to acquire a new residence, this guide is for you. 

Imagine you’ve set your sights on your dream home. However, most of your savings are tied up in your business. Withdrawing these funds would result in a significant personal tax liability, something you’d prefer to sidestep. So, how can you leverage your corporate savings to buy that house without incurring personal taxes? Here’s a step-by-step approach: 

1. Set Up a New Corporation:
   Establish a new Canadian corporation, either at the federal or provincial level. This new entity can be named, for instance, “House Inc.” You and/or your family can own shares in House Inc.
2. Transfer Funds Without Tax Implications:
   Shift funds from your primary company (let’s call it “Money Bags Ltd” for this example) to House Inc. This transfer should be structured as a tax-free loan.
3. Implement a Nominal Interest Rate:
   Impose a 1% annual interest rate on the loan, aligning with the Canada Revenue Agency’s prescribed interest rate. Ensure House Inc. settles this interest to Money Bags Ltd. annually. This arrangement should be formalized with a loan agreement or promissory note.
4. Use the Loan for Home Purchase:
   House Inc. should utilize the loan from Money Bags Ltd. either to construct or buy the new residence.
5. Consider External Financing:
   If House Inc. lacks the full amount for the home purchase, it can secure a mortgage from a Canadian bank. For instance, for a $1,000,000 property, if House Inc. has only $400,000 from the loan, it would need a $600,000 mortgage to bridge the gap.
6. Pay Rent to Your Corporation:
   Once House Inc. owns the property, you’ll rent it from the corporation. House Inc. will then pay corporate taxes on the rental income after deducting relevant expenses.

A potential challenge might be securing a mortgage for House Inc. from Canadian banks, as they often have stricter criteria for corporate loans. An alternative is to personally obtain the mortgage and buy the property in your name. However, a legal agreement should state that House Inc. is the actual beneficiary of the property, and you’re merely holding it in trust for the corporation. Additionally, a loan agreement between you and House Inc. should be in place, detailing the repayment terms for the personal mortgage.