Ask The Expert with George E. Dube

I would like to know when to shift my portfolio from properties in mine and or wife’s name and convert them into a holding company. Should this be based on number of properties, amount owing, and liability risk? When does tax saving become beneficial to switch if I had no other income?

It depends!!!   

You have to weigh many factors to make this decision, after determining ?where are you now, and where would you like to be in 3, 5, 10 and 20 years, then beyond. Different individuals will place different degrees of importance to the areas of flexibility, legal, taxation, financing and organization/professionalism and your weightings typically change over time. In other words, one person may be more concerned about legal protection as compared to taxes. There’s no wrong answer provided that you are aware of the implications and trade-offs.  Furthermore, advice from a tax, legal, and financial perspective are critical. 

While I certainly would need to know more before recommending one particular structure vs. another, here are a few general comments:

• Roughly speaking, I recommend a corporate structure ?80% of the time. 
• There are extra costs to transferring personally owned property to a corporation, particularly if your property is in a province with land transfer tax. 
• Owning one or two small properties personally typically is fine from a tax perspective.
• Most people only need a relatively simple corporate structure to start with, assuming a corporate structure is needed.
• Measure the tax savings and costs to implement a structure over a reasonable period of time as compared to the immediate cost /savings. I see too many people sacrifice significant future savings and benefits to save a few bucks today.
• Asset protection will never be perfect, as we discussed in previous REIN sessions, forcing you to take what in your mind are reasonable measures to protect your growing assets. 
• Tax savings may be immediate, down the road, or even non-existent depending on your situation.
• Talk to knowledgeable and experienced advisors who are also investors.

As you are fully aware, there is a significant amount of disinformation and misunderstandings out there.  ?I strongly believe that the vast majority of advisors have your best interest at heart, so I encourage you to discuss with an advisor who can take the time to explain why they recommend one structure versus another, and are able to reconcile the assortment of comments you may have “learned” so that a solution can be tailored to your needs for today, and for tomorrow. 

George E. Dube, CPA, CA is a veteran real estate investor and accountant. He has spoken, written various articles, and co-authored two books on real estate accounting. Reach George at: gdube@bdo.ca or @georgeEdube.

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