Buying Real Estate Through a Corporation: Title and Ownership Issues in Ontario

Investors and business owners often ask whether they should buy property in a corporation instead of in their own names. The answer depends on your goals, your lender and your tax position, and no single structure fits everyone.

This article walks through the main title, land transfer tax, mortgage and liability questions, so you can ask better questions of your lawyer and accountant.

What changes when a corporation is on title

A corporation is a separate legal person. If it buys the property, the corporation's name goes on title, not yours. Documents are registered electronically through Teraview by authorized account holders.

This affects day-to-day matters. The corporation signs the agreement, the mortgage and the sale documents through its authorized officers. If the corporation later sells, it is the corporation, not you personally, that sells. Whether the property should be in your name or a corporation's affects who owns it, who can sell it and how it passes on your death, so decide this before closing, not after.

Land transfer tax on a corporate purchase

Tax outcomes can depend on who the buyer is, as well as on the transaction itself, as the points below show. Ontario land transfer tax is normally calculated on the value of the consideration, meaning the amount paid for the land, including liabilities the transferee assumes such as a mortgage. The Act defines value of the consideration broadly as the gross sale price plus any benefit of whatever kind conferred as part of the arrangement.

Provincial rates for agreements after November 14, 2016, are 0.5% up to $55,000, 1.0% from $55,000 to $250,000, 1.5% from $250,000 to $400,000 and 2.0% over $400,000. The rate is 2.5% over $2,000,000 where the land contains one or two single family residences.

• Foreign nationals, foreign corporations and taxable trustees buying residential property also pay the Non-Resident Speculation Tax at 25%.
• The first-time homebuyer refund of up to $4,000 requires, among other things, that the buyer be at least 18 and occupy the home as a principal residence within nine months. A corporation cannot meet those personal conditions.
• Toronto charges its own municipal land transfer tax on top of the provincial tax, so confirm that separately if the property is there.
• Changes to the Land Transfer Tax Act have been proposed, so rates and exemptions should be re-checked before you close.

Moving property you already own into a corporation

This is where people are surprised. Ontario's Land Transfer Tax Act has no general exemption for gifts of land, though no tax is payable if no consideration of any kind passes. If land is transferred subject to a mortgage the recipient takes on, tax is payable on the amount owing at registration, whatever the relationship between the parties.

Ontario does offer exemptions for certain transfers of farmed land between family members, and for certain transfers from an individual to their family business corporation. The word certain matters, because conditions apply and you must check that yours are met.

There is also income tax. A person who transfers property to a non-arm's-length person for less than fair market value is deemed to have received proceeds equal to fair market value, which can trigger a capital gain. Whether your corporation is non-arm's length with you depends on the facts, so an accountant should confirm.

Do not understate the price or structure a deal only to avoid tax. Land Transfer Tax Act section 12.1 is a general anti-avoidance rule, which sets tax consequences as is reasonable to deny the tax benefit of an avoidance transaction. False or deceptive statements are an offence, with a fine of at least the greater of $1,000 or 50% of the tax that should have been paid, and possible imprisonment of up to two years. Where unpaid tax results from fraud or wilful default, the Minister may also assess a penalty of the greater of $500 and 25% of the unpaid tax.

Mortgages and personal liability

Lenders often treat corporate borrowers differently from individuals. They may ask for different terms, a larger down payment or a personal guarantee from the owners. What signing a guarantee would mean for you personally depends on its wording and your situation, so it is worth confirming with a lawyer. The exact terms depend on the lender and the commitment letter, so have a lawyer review it before you sign.

Corporate ownership can separate some business risks from your personal assets, but how far that goes depends on the facts, your guarantees and your insurance. If the property is a home where a spouse lives, ask whether family law rules about selling or mortgaging a matrimonial home affect you. A matrimonial home is property a spouse has an interest in that the spouses ordinarily occupy as their family residence, or did at separation. No spouse may sell or mortgage an interest in a matrimonial home unless the other spouse joins in or consents, has released their rights in a separation agreement, or a court order authorizes it. Consent is not needed for a property that both spouses have not designated as a matrimonial home, where a joint designation of another property is registered and not cancelled. Whether these rules reach a property held by a corporation depends on the facts, so it is worth confirming with a lawyer.

Title insurance is optional in Ontario. For a one-time premium it may cover unknown title defects, existing liens, encroachments, survey and public-record errors and title fraud, but it generally excludes defects the buyer knew about, environmental hazards and native land claims.

What to do next

• Decide with an accountant whether a corporation makes sense for your tax position.
• Ask your lawyer to confirm the land transfer tax, including any municipal tax and any proposed changes.
• Get the lender's requirements, including any personal guarantee, in writing before you commit.
• If you are moving an existing property into a corporation, ask about land transfer tax on any mortgage and income tax on any gain.
• Make sure the corporation is properly set up and its officers can sign before closing.
• Ask about title insurance and what it excludes.

Frequently asked questions