Joint venturing with your Corporation

[UTCVenturesLtd]

I do not attract joint venture investors so rather than do a solo flip and be taxed to death, I thought to split the deal with my corporation after selling off a property that it holds. I can reduce the tax payable as far as I know by purchasing a 5 ton truck and expand the company`s tool collection. All will be very useful for future projects.

 

[Thomas Beyer]

QUOTE (UTCVenturesLtd @ Dec 27 2008, 11:00 PM) I do not attract joint venture investors so rather than do a solo flip and be taxed to death, I thought to split the deal with my corporation after selling off a property that it holds. I can reduce the tax payable as far as I know by purchasing a 5 ton truck and expand the company`s tool collection. All will be very useful for future projects.
ok .. as long as the valuations are done at fair market value .. so get evidence that a buy from (or to) a corporation to (or from) self is done at reasonable prices in case the CRA wishes to audit you !

I do not see the reduced taxes ! Perhaps a delay in taxation if you do a roll-over, but not a reduction. How is that done ?

 

[UTCVenturesLtd]

The sale of one property held by the corporation would free up cash plus profits of 70k taxed at a high rate. Idea is to spend the profits wisely on tools and equipment so it can grow faster with the deductions on the profits. The other funds available are used to do the JV. I suppose the other option would be to refinance the property to make available the funds for the JV without selling the property.

 

[GarthChapman]

Why taxed at a high rate? Why not Capital Gain taxation? Was it a flip? Are you taxed at Passive income rate or Active income rate?

Also check into the magic of the Capital Dividend account - which provides half of the capital gain to you at ZERO TAX.

 

[Thomas Beyer]

QUOTE (UTCVenturesLtd @ Dec 28 2008, 02:18 PM) The sale of one property held by the corporation would free up cash plus profits of 70k taxed at a high rate. Idea is to spend the profits wisely on tools and equipment so it can grow faster with the deductions on the profits. The other funds available are used to do the JV. I suppose the other option would be to refinance the property to make available the funds for the JV without selling the property.
indeed ..

re-fi = no taxes paid

sale = taxes payable

 

[UTCVenturesLtd]

QUOTE (GarthChapman @ Dec 28 2008, 02:35 PM) Why taxed at a high rate? Why not Capital Gain taxation? Was it a flip? Are you taxed at Passive income rate or Active income rate?

Also check into the magic of the Capital Dividend account - which provides half of the capital gain to you at ZERO TAX.


It started out as a rental but would be renters would not come up high enough so that it would cash flow, so it turned into a short term furnished rental which is getting rented out often and being furnished (staged), it could be a flip. The problem to refinance property under a corporation is that the banks want around 2% more than doing individually.

For real estate, i like the idea of holding for a long time and preferably held under a corporation so it lives forever!

Will have to check out the Capital Dividend account and learn more. I believe that with the first $20,000 of dividends as an annual income you would have zero tax to pay.

 

[GarthChapman]

QUOTE (UTCVenturesLtd @ Jan 1 2009, 07:31 PM) It started out as a rental but would be renters would not come up high enough so that it would cash flow, so it turned into a short term furnished rental which is getting rented out often and being furnished (staged), it could be a flip. The problem to refinance property under a corporation is that the banks want around 2% more than doing individually.

Will have to check out the Capital Dividend account and learn more. I believe that with the first $20,000 of dividends as an annual income you would have zero tax to pay.

Based on your description of what CRA calls `original intent` and `frustration of original intent` I would think this property, if sold, should qualify as a capital gain. But why not refinance instead, as Thomas earlier suggested? Hold the property in your personal name under a Trust Agreement that stipulates you are holding the property for the `Beneficial Owner` (your Company) and thereby finance with a mortgage in your name at lower rates.

You reference to at 20k limit is not related to the Capital Dividend Account - it has no limits. It is the other half of the Capital Gain your realize (the half that is not taxed - and is thereby available to you at no tax). When done via a corporation there is an additional impact on the corporation`s income tax that is nearly magical. I can`t explain it but we are happily experiencing it from several sales we made in 2007 and a few again in 2008 - all as a part of our longer term planning.