Ownership structures in real estate

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Dave Sran, BBA Hons, CPA, CGA
Dave Sran, BBA Hons, CPA, CGA
Dave Sran, BBA Hons, CPA, CGA

Tax Question:

What are common types of ownership structures in real estate?

Facts:

The common types of ownership structures in real estate are owned as an individual, in a corporation, in a partnership or in a joint venture. The type of structure generally depends on the purpose of the use.

Discussion:

We will summarize some of the main considerations of each ownership type below.

Individual Ownership

  • Less complexity but income is taxed at personal tax rates which can be the highest rates.
  • Any losses incurred can be offset against any income.
  • There is no liability protection for the individual besides the insurance policy on the property.

Corporation

  • More complexity but good structure for multiple owners.
  • Small business deduction allows for lower corporate tax rates on active business income. However, passive investment income is taxed at higher rates.
  • Losses can be carried back or used against future income in the company.
  • There is liability protection for the shareholders of the company.

Partnership

  • Multiple owners are required for this structure.
  • The partnership can be general or limited in nature. The main difference is that in a limited partnership, the partner is only liable for the amount of initial investment; whereas in a general partnership, the partners are jointly responsible for all liabilities.
  • A T5013 tax information return is required to be filed annually and income is flowed out to the partner to be taxed individually or in their corporation.

Joint Venture

  • Common real estate structure where an agreement is in place that will detail the rights and obligations of each owner which can be an individual or a corporation.
  • The income, expenses, assets and liabilities are flowed out to the owners so there is no separate tax return required for this structure.
  • Risk that a joint venture can be considered a partnership by Canada Revenue Agency and there are GST issues to consider.

Dave Sran, BBA (Hons), CPA, CGA, Manager

Staff Accountant, Gilmour Knotts Chartered Accountant.
Email: faqs@gilmour.ca

Email: faqs@gilmour.ca
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