Hey everyone,

I am in the process of securing financing for my first residential investment property in Alberta, and had planned on incorporating because I believed the benefit of limited liability outweighed the more difficult financing I would likely face.

Recently however, a friend of mine mentioned that in Alberta incorporation helps little in terms of limited liability because most mortgages require a personal guarantee anyways, and in addition, liability for personally held non-insured mortgages in Alberta is restricted to the property, and not the owner him/herself. This seemed strange to me and I wanted to touch base with any other Alberta investors out there regarding their thoughts on incorporation, and more specifically whether they were aware of this property specific liability, as I have not been able to verify this despite my searching.

Thanks very much for the help!

Several advantages exists

A) Liability limitations: they do exist for major lawsuits or losses limited to corporate equity but rest assured that in a fire or other catastrophic event you will be sued personally too.

So, for example if you buy land which has the risk of contamination it probably makes a lot of sense to have a corporation hold it, and not you personally.

Almost all mortgages in a corporation carry a personal guarantee so again you are personally liable if you default.

B) Cash accumulation

The only real advantage of incorporating is lower tax rate for small businesses - now possibly nixed by the socialists in power in Ottawa - and as such cash accumulation from a profitable active business.

C) Income splitting

The third major advantage is ability to hire spouse or family members and/or paying them dividends.

D) Continued business of owner dies or sells
Businesses can live forever - unlike a person.



Those for clear benefits have to be weighed vs the initial setup and annual costs.

JDE said:

Hey everyone,

I am in the process of securing financing for my first residential investment property in Alberta, and had planned on incorporating because I believed the benefit of limited liability outweighed the more difficult financing I would likely face.

Recently however, a friend of mine mentioned that in Alberta incorporation helps little in terms of limited liability because most mortgages require a personal guarantee anyways, and in addition, liability for personally held non-insured mortgages in Alberta is restricted to the property, and not the owner him/herself. This seemed strange to me and I wanted to touch base with any other Alberta investors out there regarding their thoughts on incorporation, and more specifically whether they were aware of this property specific liability, as I have not been able to verify this despite my searching.

Thanks very much for the help!

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I cant see any benefit for you to incorperate. Financing for a 'brand new pulled off the shelf corperation' without any income is virtually impossible. (You might find a lender for 18% interest rate)
Then there is the cost, about $300/400 to incorperate, your corporate tax filing by accountant (minimum) $800.00, and if you don't want to do data entry for your bookkeeping you pay a bookkeeper minimum $25 an hour. That one residential property better has tremendous cash flow.

About personal liability within a corperation, know that every time you sign a document as director of the corperation, but with a PG attached (in Alberta this is only valid when signed in front of lawyer/notary) you will always be liable.

So your question about the personally held (insured or non insured) mortgage, you will still be responsible (liable) as well when defaulting on payments. Your lender will make sure of that.

All other liability risks, I.e tenant to landlord etc, should be covered off by your personal property insurance.

Point B and C in Thomas' post would be a good reason to incorperate, and when you have a good accountant he will let you know when that moment is there.