Creating a Business

[grantala]

Good day again,

Before joining REIN I`m debating of whether it`s prudent to create a business.

I live in Alberta and it would be a Self Proprietorship being home-based.

The reason I would consider starting a company would be to facilitate tax advantages. Many costs can be deductible.

I would then conduct all of the real estate functions from a business perspective.

Pros? Cons? I already have an appointment with my lawyer to discuss plans as I`m sure thats the way most of you would advise.

Also, being in the real estate business, do you need to apply for a GST# or a BN?

Thanks for all the great help so far,
Greg

 

[lanedry77]

QUOTE (grantala @ Apr 9 2008, 08:33 PM) Good day again,

Before joining REIN I`m debating of whether it`s prudent to create a business.

I live in Alberta and it would be a Self Proprietorship being home-based.

The reason I would consider starting a company would be to facilitate tax advantages. Many costs can be deductible.

I would then conduct all of the real estate functions from a business perspective.

Pros? Cons? I already have an appointment with my lawyer to discuss plans as I`m sure thats the way most of you would advise.

Also, being in the real estate business, do you need to apply for a GST# or a BN?

Thanks for all the great help so far,
Greg
Hi Greg,

If you`re forming a Sole Proprietorship or a Partnership, there are absolutely no tax benefits at all, since everything goes on your personal income tax return. To seperate your business onto a seperate income tax return you would need a corporation.

You do not need a GST number.

And the decision to incorporate should be made not only with your lawyer`s input, but also your accountant. And make sure you have a lawyer and accountant that know the unique business of real estate investing.

As for the `should you`... it depends. Do a search (top left of the page) for `incorporate`, or something like that, and you`ll find a lot of discussion on the topic already. The general bottom line is that unless you have a very specific reason why you should incorporate, then you shouldn`t.


David.

 

[grantala]

Thanks for your reply David.

If the the income goes on your personal income tax return, do the business expenses qualify as being deductible?
I don`t think starting out I need to form a corporation, but would like to have some sort of name in order to keep the real estate items separate from my personal items, ie: bank accounts.

Thanks

 

[lanedry77]

QUOTE (grantala @ Apr 10 2008, 09:59 AM) Thanks for your reply David.
If the the income goes on your personal income tax return, do the business expenses qualify as being deductible?
I don`t think starting out I need to form a corporation, but would like to have some sort of name in order to keep the real estate items separate from my personal items, ie: bank accounts.

Thanks
Hi Greg,

If you have a good accountant, they will definately be able to take all legitimate expenses that you incurred as part of your real estate investments, and deduct them - regardless of it being on your personal tax return or a corporations.

And if you will only be using your personal name for things like business cards, advertising, and bank accounts, then there`s no reason to register the sole proprietorship. If you are going to use a marketing name to represent yourself (`great equity investments`, for instance) you need to register that name. Note that registering that name is different that forming a corporation (`great equity investments inc`, for instance).

Also, if you keep things personal, you will pay less for bank accounts and the like (a free personal account at ING Direct or PC Financial, versus a $10/month corporate account at BMO or TD).


David.

 

[PeterKinchMortgageTeam]

QUOTE (grantala @ Apr 10 2008, 10:59 AM) Thanks for your reply David.

If the the income goes on your personal income tax return, do the business expenses qualify as being deductible?
I don`t think starting out I need to form a corporation, but would like to have some sort of name in order to keep the real estate items separate from my personal items, ie: bank accounts.

Thanks

There are more challenges when you are applying for financing under company names. While many lenders do offer financing that way - some lenders do not do it all all, and some will only under certain circumstances.

 

[seanverret]

QUOTE (DavidSandbrand @ Apr 10 2008, 11:43 AM) ...And if you will only be using your personal name for things like business cards, advertising, and bank accounts, then there`s no reason to register the sole proprietorship. If you are going to use a marketing name to represent yourself (`great equity investments`, for instance) you need to register that name. Note that registering that name is different that forming a corporation (`great equity investments inc`, for instance).
...

How does one go about registering a name like `great equity ivestments`, without forming a corporation or sole propietership. This is exactly what I want to do, just so I can keep the name for marketing purposes, but still file all my taxes etc. personally...

Thanks

 

[lanedry77]

QUOTE (seanverret @ Apr 10 2008, 02:19 PM) How does one go about registering a name like `great equity ivestments`, without forming a corporation or sole propietership. This is exactly what I want to do, just so I can keep the name for marketing purposes, but still file all my taxes etc. personally...

Thanks
Hi Sean,

You`re talking about a trade name, which is the same as a sole proprietorship - it`s basically just letting the government know that you`re representing your personal self with a business name. Everything stays as a personal transaction, and henc there`s no extra tax forms or anything.

You would just go to a corporate registry and they can walk you through the process - it`s simple, and there`s only one or two 1-page forms to complete. Most registries that will renew a drivers license can do this sort of work, but some registries are for business services (like this) only. just go wherever is more convienient.

It will cost something like $30 or $40 for everything.

http://www.servicealberta.gov.ab.ca/730.cfm has far more info than what I can recall, and will have a listing of registries too.


David.

 

[seanverret]

QUOTE (DavidSandbrand @ Apr 10 2008, 02:26 PM) You`re talking about a trade name, which is the same as a sole proprietorship - it`s basically just letting the government know that you`re representing your personal self with a business name. Everything stays as a personal transaction, and henc there`s no extra tax forms or anything.

You would just go to a corporate registry and they can walk you through the process - it`s simple, and there`s only one or two 1-page forms to complete. Most registries that will renew a drivers license can do this sort of work, but some registries are for business services (like this) only. just go wherever is more convienient.

It will cost something like $30 or $40 for everything.

http://www.servicealberta.gov.ab.ca/730.cfm has far more info than what I can recall, and will have a listing of registries too.

FYI - It really was this easy and we did get around to doing it this fall. Thanks for your help David.

 

[GarthChapman]

QUOTE (CanadianMortgageTeam @ Apr 10 2008, 10:59 AM) There are more challenges when you are applying for financing under company names. While many lenders do offer financing that way - some lenders do not do it all all, and some will only under certain circumstances.

You can hold the properties in your own names in trust for your company (the beneficial owner) via Trust Agreements.Your lawyer can explain in details how that works. We have held many many properties using this method, which made the mortgages easy to obtain.

 

[Thomas Beyer]

QUOTE (grantala @ Apr 10 2008, 08:59 AM) Thanks for your reply David. If the the income goes on your personal income tax return, do the business expenses qualify as being deductible?
I don`t think starting out I need to form a corporation, but would like to have some sort of name in order to keep the real estate items separate from my personal items, ie: bank accounts.

Thanks

A business is a business .. whether you have a corporation or not .. You are the CEO of your life !

A simple corporation costs $1000 or so to set up and at least $2000/year for accounting / filing (more if larger or more complicated share structures).. so this makes sense only if revenues are sizable .. say $50,000 or more / year ..

any expense that a corporation can expense you can expense as a sole proprietor, such as:
a) trips to inspect rental properties
b) a computer
c) REIN membership
d) travel expenses to annual meetings
e) office in your home
f) legal fees, accounting fees, hiring your grandmother to help stuff envelopes for $12/h, your kids helping with flyer delivery in the neighborhood, your spouse`s time helping you managing your chaotic office clutter ... etc. ...

Taxes are similar .. unless more than one beneficial party is desired ..

Anything that is actually and reasonably required for the business could and should be expensed !

There are a few benefits for a corporation though:
a) legal liability is separate, as a corporation is a distinct person .. so the company gets sued but not you, or the company goes bankrupt but not you, a building burns down and the company loses an asset but not you, the company owns a radioactive site and thus could have liabilities, but not you ... etc. ... this liability separation alone might be worth the trouble of setting up a company ..

b) multiple people can benefit, via various classes of shares, some with voting rights, some w/o, some with dividends, some w/o, so kids, spouse, grandfather, investor A, investor B or investor C all can get shares and beneficial interests, which sometimes can create tax benefits

c) if you die, you`re dead, but not the company .. it lives on .. so an asset owned by a company can now be managed by your son or investor A or a professional manager .. with beneficial interests (see item b) to continue as if you are alive (let`s say you do a JV via a corporation and you own 1/3 .. and you die .. the 1/3 goes to your estate/spouse but the JV continues .. and your spouse could hire a professional manager to continue the JV without you ..)

d) you can separate ownership from management i.e. you can own 100% of the company but another person can do the work (for a salary presumably, plus perhaps other beneficial interests such as profit sharing or bonuses), or investor A, B and C and you own 25% each of the equity gain of an asset, but you are the president and make all decisions and get a salary of $25,000/year for work ... or you can have class A shares for voting control which you own and class B non-voting shares for profit sharing for 8 investors ... i.e. it allows an elegant implementation of a JV

 

[RCC]

When not set up as a corporaration but just operating under your personal name, how do you claim mileage expenses for trips to view properties etc.
Can you track km and take a charge per km - such as 50 cents per km ?

 

[Dan_Eisenhauer]

Keeping track of mileage is a pain. It was one chore that I hated doing as a Realtor. It meant jotting the beginning and ending mileage for each business related trip. It means noting your beginning mileage on Januuary 1st, and your ending mileage on Decmeber 31st. You then need to total your business mileage and deduct those from the total. Let`s asume, for the sake of agruement that your business usage is 25% of the total. You can then write off 25% of your total vehicle expense against your income from all sources.

I use QuickBooks for my book keeping. I recently discovered that QuickBooks has a place to enter vehicle mileage and maintaining the record over the year. Using this feature will make my record keeping easier.

Prior to QuickBooks, I had created an Excel spreadsheet where I had each month in its own column, and the days (1 - 31) for the rows. Each day I drove for business, I entered that day`s figure in the appropriate cell. Each month had a beginning and ending milegage which allowed me to calculate %age busines useage. It could also calculate the same for the year.

The one disadvantage of the spreadsheet system is that you also need to keep a separate record of where you drove, or to be able to match it with your daytimer.

For those who are members, I have posted that spreadsheet here.

 

[Thomas Beyer]

QUOTE (RCC @ Dec 19 2008, 07:33 PM) When not set up as a corporaration but just operating under your personal name, how do you claim mileage expenses for trips to view properties etc.
Can you track km and take a charge per km - such as 50 cents per km ?
yes you can in either case .. the CRA sets the rate .. about 42 cents or so per km ... any accountant would know the exact figure