Is transferring your principal residence to your company a good suggestion?

In your case, although, Parmod, there’s no tax to switch your own home to your company assuming it qualifies as your principal residence for all years of possession. The true query is: do you have to?

Personally using a company asset

As you’ve famous, you might have to pay hire to the company after the switch. The explanation: If you happen to use a company asset for private use, you both have to pay for that utilization, or embody a taxable profit in your private revenue for the yr. 

Within the case of actual property, paying the company can be primarily based on truthful market worth for hire. The hire can be thought-about taxable revenue to the company with a tax price of round 50% (the speed varies by province and territory). 

If you happen to didn’t pay hire, otherwise you paid under truthful market worth, you might want so as to add a taxable profit to your T4 slip. You’ll must report that profit as employment revenue, triggering private tax. 

On account of shareholder

If you happen to switch an asset to an organization, the company owes you cash in return. If you happen to 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 should you switch a $1 million asset like your own home 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 an alternative of promoting a private asset you want to hold.

Principal residence exemption: private vs. company

The principal residence exemption might be claimed by a person taxpayer in Canada, however not an organization. So, proudly owning your own home in your company, Parmod, will give rise to future capital positive factors tax. 

The inclusion price for capital positive factors is about to extend from one-half to two-thirds primarily based on the 2024 federal funds, although this transformation just isn’t but enacted into legislation. As soon as it has been, it could trigger the tax price on a company capital acquire to rise from about 25% to about 33%, although it might be barely decrease or increased relying on the company’s province of residence.