In your case, although, Parmod, there’s no tax to switch your property to your company assuming it qualifies as your principal residence for all years of possession. The actual query is: must you?
Self-employed? The right way to file your taxes
Personally using a company asset
As you’ve famous, you could must pay lease to the company after the switch. The rationale: In the event you use a company asset for private use, you both must pay for that utilization, or embody a taxable profit in your private earnings for the yr.
Within the case of actual property, paying the company can be primarily based on fair market value for rent. The lease can be thought of taxable earnings to the company with a tax price of round 50% (the speed varies by province and territory).
In the event you didn’t pay lease, otherwise you paid beneath truthful market worth, you could want so as to add a taxable profit to your T4 slip. You’ll must report that profit as employment earnings, triggering private tax.
Resulting from shareholder
In the event you switch an asset to an organization, the company owes you cash in return. In the event you switch $1,000 to your company checking account out of your private checking account, for instance, the company usually owes you again that quantity tax-free.
The identical might apply when you switch a $1 million asset like your property to an organization. The company might then owe you $1 million tax-free. This may be an choice to take money out of an organization as a substitute of promoting a private asset you want to preserve.
Principal residence exemption: private vs. company
The principal residence exemption may be claimed by a person taxpayer in Canada, however not an organization. So, proudly owning your property in your company, Parmod, will give rise to future capital gains tax.
The inclusion price for capital beneficial properties is about to extend from one-half to two-thirds primarily based on the 2024 federal finances, although this alteration isn’t but enacted into regulation. As soon as it has been, it will trigger the tax price on a company capital acquire to rise from about 25% to about 33%, although it might be barely decrease or larger relying on the company’s province of residence.
