Use existing corp to purchase recreational property?

[riggert]

Hi guys, looking for some general guidance here. I am the sole owner of a company that is now essentially a holding company since the product lines were all purchased by another company. The company has a lot of cash and is investing it and paying me out over many years. I`m considering buying a recreational property and deciding whether to have my company buy it.

The recreational property is a planned community that also includes rental management so it could be rented out fairly easily to cover property taxes / condo fees etc but its primary use would be for use by my family / friends.

The price is roughly $500K and would be paid in cash by the corporation

I know there are some potential issues with running it through the corp such as any income made (or is it profit?) is taxed at a high rate however my personal tax rate would be the same I believe so don`t think that is an issue. Once the property is sold I believe taxes on profit are higher but the plan would be to hold on to this fairly long term.

I see the biggest advantage is purchasing this with before tax money - to purchase this myself I would have to bonus out roughly $850K, pay tax and then the remaining amount would be used to purchase myself but when done through the company it is simply a $500K transaction.

If anyone has any knowledge in this area or can point me to someone who can help it would be appreciated

Thanks,

 

[Thomas Beyer]

QUOTE (riggert @ Jun 9 2010, 03:27 PM)
...

I see the biggest advantage is purchasing this with before tax money - to purchase this myself I would have to bonus out roughly $850K, pay tax and then the remaining amount would be used to purchase myself but when done through the company it is simply a $500K transaction.

..


That is true .. but you also have to pay taxes on any gains within a corporation first .. and then you can dividend money for far lower tax rates



The downside of buying in the firm is that any personal use may have to be declared a taxable benefit ..



Also tougher to mortgage, if this is the goal at some point.



Other thoughts of Pro`s and Con`s of using a company for real estate holding:

http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10292-54272-To_create_a_company_or_not.html#54272

 

[MikeMcCrae]

Something else to consider...Maybe leverage your money and buy more then one property. Buying 2 with 50% down may be a better deal for you and the mortgage costs would be tax deductible. If it is a long term plan this might be a better fit for you.

 

[Thomas Beyer]

QUOTE (MikeMcCrae @ Jun 10 2010, 08:49 AM) Something else to consider...Maybe leverage your money and buy more then one property. Buying 2 with 50% down may be a better deal for you and the mortgage costs would be tax deductible. If it is a long term plan this might be a better fit for you.
If they cash-flow .. which is usually NOT the case with recreational properties that are maybe only 10-15% occupied (i.e. 85% to 90% vacant) and rarely cash-flow even with no mortgage due to condo fees, property taxes and management fees !

 

[riggert]

QUOTE (ThomasBeyer @ Jun 10 2010, 10:50 AM) If they cash-flow .. which is usually NOT the case with recreational properties that are maybe only 10-15% occupied (i.e. 85% to 90% vacant) and rarely cash-flow even with no mortgage due to condo fees, property taxes and management fees !

Thanks for the feedback - if I used them primarily for rental income they would easily cashflow with no mortgage. Total yearly expenses are < $5K and during the summer I could get much more than that for a single month rental based on my experience at the location and speaking with other owners however this is meant for recreation for family / friends at least for the foreseeable future.

It seems like my general understanding is correct in that doing the full purchase through the company makes sense but I`ll be sure to look into it further. That being said, if a REIN member with a strong background in the accounting, legal and tax issues surrounding this type of transaction wants to provide me with a quote for services and get all of the details on this transaction then I`d be happy to hear from you.

Thanks again
Roy

 

[Thomas Beyer]

QUOTE (riggert @ Jun 11 2010, 02:28 PM) ..and during the summer I could get much more than that for a single month rental based on my experience at the location and speaking with other owners however this is meant for recreation for family / friends at least for the foreseeable future.
..
indeed .. as high income months equal the month you`d use it yourself usually !

Thus: often little extra income .. thus the possible question by CRA: why do you own a personal use asset in a corporation ?