Is transferring your primary residence to your company a good idea?

However, in your case, Parmod, there is no tax on transferring your home to your company assuming it qualifies as your primary residence for all years of ownership. The real question is: should it?

Personally using business property

As you can see, you may need to pay rent to the company after the transfer. Reason: If you use business property for personal use, you must either pay for that use, or include taxable income in your annual income.

In the case of real estate, paying the corporation will be based on the fair market value of the rent. The rent will be considered taxable income to the company with a tax rate of approximately 50% (the rate varies by state and location).

If you didn’t pay rent, or paid less than fair market value, you may need to add taxable income to your T4 slip. You will have to report that benefit as employment income, which results in personal income tax.

Because of the shareholder

When you transfer property to a company, the company owes you money in return. If you transfer $1,000 to your business bank account from your personal bank account, for example, the corporation usually owes you that amount tax-free.

The same may apply if you transfer a $1 million property such as your home to a company. The corporation may owe you $1 million tax-free. This can be an option to get cash out of the company instead of selling the assets of the person who wants to keep it.

Principal residence exemption: personal versus corporate

The principal residence exemption can be claimed by an individual taxpayer in Canada, but not by a corporation. Therefore, owning your home in your company, Parmod, will generate future capital gains tax.

The capital gains tax rate is set to increase from one-quarter to two-thirds based on the 2024 federal budget, although this change has not yet been enacted into law. If it did, it would cause the corporate income tax rate to rise from around 25% to around 33%, although it could be slightly lower or higher depending on the province where you live.