Condo owned by corporation but rarely used to generate rental income

Hi All, my client planning to incorporate a holding company, then to take a mortgage and buy a property in the holdco name.

He will use the property to work form it “as an office” but also he could rent it out in future.

Is it correct to use GIFI "occupancy cost # 8912 to report around $24K of annual opex expenses (interest, property tax, repairs, utilities)?

Can this $24K expenses be reported on Schedule 7 (statement of rental property) consistently every year ( as I mentioned above, rental income is immaterial?

I noticed if I report the $24K on Schedule 7, this will create net rental loss which will offset other property & investment income (dividend, interest) on schedule 7, is that correct form the income tax code perspective?

Are rental expenses on schedule 7 limited to the rental income earned during the year?

As you know investment income taxed at high rate, and I don’t find it convincing that because client rented the property for short time in the year he qualifies to deduct full active business rent expenses from the passive investment income

appreciate your thoughts and experience

Sounds like your client should hire an accountant. If the building is not rented, you don’t report rental income or expenses.

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Rental income us considered inacitve unless you have 5 full-time staff. Do you really want the rental property in a corporation?

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It sounds like a lot to go through for guaranteed CRA problems. Helga is correct. Your rental income/loss is not active business income and CRA, if they look at it, will likely not allow the deduction of the condo operating expenses against investment income. Compare it with trying to deduct your home operating expenses against investment income. There’s not much connection between the income and the expense.

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There are five implied questions:

  1. What is the best strategy for tax optimization for a property occupied by an active business of a sole business owner?
  2. What/who are all the possible entities and owners to consider?
  3. What are all the possible scenarios to consider?
  4. What are the current tax, cashflow, retained earnings/personal net worth, and financial risks in each scenario?
  5. How would other considerations such as age, health, and estate planning be? How would each of these impact each of the above scenarios.

Another way to get at the base concepts is to ask the questions – “When and why to own commercial real estate in a holdco?”

This is a complex topic and varies by situation. Your client would need to some their personal and business objectives, and, current and possible future situations. There are Tax and Bookkeeping CPA’s who specialize in the area. They do nothing but real estate holdings companies, real estate rental, and real estate property management. The ins and outs of each are technical and the analysis varies for each business opportunity and each investors personal and family financial situation.

Here are some links to get you started:-

Should you buy real estate through a corporation?
It can make sense to purchase rental or vacation properties through a corporation, but often it’s simpler—and less risky from a tax perspective—to own the real estate personally.
Source:/ Should you buy real estate through a corporation? - MoneySense

Ever considered using a real estate corporation to buy property? Corporate Real Estate is having a corporation as the legal owner and on title of a property instead of your personal name(s). It’s a very popular question asked by real estate investors and it’s hard to have one answer to that question without analyzing a client’s circumstance individually. However, there are few concepts that you should be aware about when considering to purchase real estate under a corporation.

DIGGING INTO THE PROS AND CONS OF PURCHASING REAL ESTATE IN A HOLDING COMPANY.

Holding Company in Canada: What is it for?

Should you buy real estate with your corporation?

3 Tier Corporate Structure Real Estate Investors

Happy digging and researching.

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I’m not sure I fully understand the situation.

Does your client also have an OpCo? If so, are you thinking the OpCo would rent from the HoldCo for use of the Condo as an office? This sounds fine but just know that if the OpCo is active, then the rental income to the HoldCo would be deemed active as well per ITA 129(6)(b)(i). Also, HoldCo would need to charge OpCo market rent and the expenses to own the condo can be claimed against the rental income from OpCo. You would not prepare the rental worksheet or s.7 for the rental income in this case.

There are also HST considerations. This would be a commercial rental, which is taxable supply. You could file an RC4616 election to not have to charge HST between the connected corporations.

If it was truly a rental property, then the rental losses would go against the other property income on s.7. However, only the expenses incurred while the rental property was “available” for rent could be claimed.

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Thank you Jeremy

Thank you Nezzer

Ditto @jeremy1

(my original reply said the same thing; deleted here now)