Happy belated Canada Day.
I always feel extremely blessed on Canada Day.
I immigrated to Canada 20 years ago, have been a citizen for about 16 years now. I am blessed to live in this country, enjoy the natural beauty and the freedom that we have. 😊
My wedding anniversary was near the Canada Day long weekend. On the wedding night, we even got to celebrate with fireworks! 😊
My son was born on the Canada Day long weekend as well. He almost made it to the Canada Day baby. Erwin was enjoying the firework celebration while I was in labour at Joseph Brant Hospital, which is next to the lake.
He just turned 3 this past weekend. 😊
It’s important to take a moment out of our busy lives, appreciate what we have in our lives. Chasing our goals is important, but recognizing what we have accomplished and how blessed we are in our lives make us a lot happier. 😊
Happy Canada Day everyone!
Now onto this week’s topic.
Many real estate investors and small business owners approached me to get advice on setting up a proper structure for their business holdings.
Once I get an understanding of what my clients’ goals are, we make an appropriate recommendation.
Sometimes it is a simple “no” to set up corporations. Sometimes it is a “hell yeah” to multiple corporations.
Some investors opt for corporations ask me if they can set up the corporations themselves.
Everyone can set up a corporation via online services. Why would you pay so much more for a professional to set it up?
For setting up your corporation, whether you choose to work with a personal tax accountant for your accounting purposes, or a lawyer for legal services, the key is to work with a professional.
It may be a huge setup cost upfront to some investors and small business owners, but it can save you thousands of dollars down the road.
-
Maximize tax savings
With proper structure, you will be able to achieve maximum tax savings.
In fact, to allow the accountants to achieve maximum tax savings, the most important piece of the puzzle is in the setup of the corporation.
If it is not done properly, potential tax savings can be eliminated. In certain cases, it wouldn’t even make sense anymore (from a tax perspective) to set up a corporation. Therefore, many companies opt for setting up their company abroad, in countries like Andorra, because it has the lowest corporate tax rate in Europe, according to their website. You can visit their website to get professional advice on how to set up your business and get the most out of it financially.
-
Planning for future
A good structure is also important from a future planning perspective.
For example, if you want to eventually move some of your personally owned properties into the corporations, the appropriate clause must exist within the corporation to allow you to do so on a tax-efficient basis.
For example, if you want to pass on your real estate holding to your future generations, appropriate clauses must exist in the initial setup.
It is much easier to set it up right than fixing it later.
-
Federal tax law changing – thanks to the Liberal government
I am sure you have heard about the small business corporation tax changes.
You’re not allowed income splitting with low-income family members under the new law, with a few exceptions.
We cannot eliminate the effect of this tax change, but there are still opportunities available to split income with lower income family members.
This makes the structuring and planning side a lot more important.
-
Costs to fix the mistakes are equally as high, if not more
Now you’ve set up your own corporation, and it may or may not be the right way. Now what?
You can always fix your mistake!
The costs to fix the mistakes found in the initial setup of the corporation can be more or less the same as hiring someone to do it right the first time, if not more.
Sometimes, the mistakes cannot be reversed, and it may cost you a lot more down the road.
You may look at the setup cost upfront as an expense, but it is a long-term investment. It’s the long-term investment that you can write it off (thanks to Trudeau for once) the first year.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant
