Setting up a holding company to hold company office

Hi, I am looking for some expertise on the following question.

(i) One of our client wants to purchase investment property to be used as Remote Office under their company. The question is … is it better to set up a holding company from a tax perpective.?
(ii) Should they take $700k mortgage under their company? or should they pay their personal finances to reduce the mortgage amount?

Would appreciate if anyone can provide a resource or advise w.r.t the above.

The answer to your question depends upon the exact nature of the holdings, operating income, cash flow, and financial plans & objectives of your client, your clients business corporation(s), family assets, real estate mortgages, and life financial plans.

For example, I have one client who has an Alberta “holdco” which owns shares in various operating cos and holdco’s.

Single with no children
Plans to leave estate to sibling and to nieces and nephews.

Corporate Structure

  • One top level holdco which holds shares in several related holdco’s and operating co’s.
  • 1/4 share in a commercial building with commercial tenants including one of their operating co. Holdco charges rent to the landman services co plus one other tenant. Although there is active rental income and some some operating expense, the objective is to own and hold this property as an investment in a low rise building in a downtown location.
  • 1/3 share in an oil and gas landman company in Alberta. Each shareholder offers their professional services via their top level holdco. In this case, the holdco provides landman services to operating landman co-s in both Canada and in Australia.
  • unknown share in an oil and gas landman company in Australia. In this case, the holdco provides management and landman services to operating landman co-s in both Canada and in Australia.
  • 1/2 share in 110 acres ranch #2. Earns income from gas right of way fees. Partitioned parcel of land into grassland of 100 acres and farmhouse with 10 acres. Invested in improvements to farmhouse and major fencing. The intention is to hold the land for nieces and nephews.

Personal holdings
Farm 1 - with farmhouse, secondary house, cattle, equipment, horses, barns, etc.
Recreational properties 1, 2, 3 - rented out on various short term and long term rental.

These were adhoc decisions based upon what was needed at the time of purchase to qualify for mortgages and to bring in partners with capital for down payment, improvements, and operating costs until each property provided a positive cash flow.

So… each situation is unique and the recommendation may vary over time based on cash flow, assets, interest rates, mortgage options, personal situation, and short & long term financial plans.

It is best to run at least three scenarios for each time period - best case, worst case, and most likely.

Holdco’s and Operating co’s are best arrived at via a team with input from lawyers, accountants, bookkeepers, and lenders.