Should You Transfer Your Principal Residence to a Corporation?

Transfer a principal residence to a Canadian corporation

In Canada you can transfer assets — including cash, investments and real estate — into a corporation. In some cases you can defer capital gains through what’s commonly called a “section 85 rollover.” But that doesn’t automatically mean it’s the right move for your home.

If your house has been designated as your principal residence for every year you owned it, there is typically no immediate tax on transferring it to a corporation. That said, the practical and tax consequences of moving a personal home into a corporate structure are significant, and the key question is whether you should do it.

Personally using a corporate asset

If you transfer your house into your corporation but continue to live in it, Canadian tax rules treat that as personal use of a corporate asset. To avoid a taxable benefit you must either pay the corporation for that use or report a benefit on your personal income.

Rent is usually determined by fair market value. If you pay fair market rent to the corporation, that rental income will be taxable to the corporation at regular corporate rates. In many provinces and territories that rate on passive or investment income can be about 50% when factoring in refundable tax mechanisms. If the fair market rent is low compared with the value of the property, a calculation based on an “equity rate of return” may be needed to properly determine a payment that reflects the benefit of owning the property inside the corporation.

If you do not pay the fair market amount or if you occupy the home without paying, the difference may be treated as a taxable benefit and should be reported on your T4 as employment income, which triggers personal tax.

Due to shareholder

When you transfer an asset to a corporation, the corporation generally owes you consideration in return. For example, if you deposit $1,000 into the corporate bank account from personal funds, the corporation ordinarily records a debt or share consideration that it owes back to you tax-free.

The same principle can apply to higher-value assets: if you move a $1 million property into the company, the corporation may record a corresponding obligation to you. In that sense, transferring an asset into the corporation can be a way of accessing corporate cash without immediately triggering a sale of your personal assets.

Principal residence exemption: personal vs. corporation

One major trade-off is that the principal residence exemption can be claimed only by an individual, not by a corporation. Once a personal home is owned by a corporation, future capital gains on its sale would generally be taxable. According to proposals in recent federal budgets, the inclusion rate for capital gains was slated to increase from one-half to two-thirds, although legislative change must still be finalized and enacted. If that increase occurs, the effective tax on a corporate capital gain would rise accordingly — potentially from roughly 25% to around 33%, depending on the corporation’s province.

To illustrate the impact: if you transfer a $1-million home to a corporation and its value grows at 3% per year, you could be creating several thousand dollars a year of additional future capital-gains tax liability. Beyond that, withdrawing the sale proceeds from the corporation later will likely trigger additional personal tax on top of the corporate tax, and the combined cost can be material.

By contrast, you may be able to withdraw cash from the corporation in other tax-efficient ways today — for example, by paying dividends while your personal income is low. Depending on your overall income, dividends can sometimes be taxed at low or negligible rates up to certain income thresholds, so drawing corporate cash does not necessarily require moving your home into the company.

What’s involved when transferring an asset into your corporation

There are several planning features and practical matters to consider that can reduce taxes or change the outcome when you transfer assets into a corporation:

1. You can add a spouse or common-law partner as a shareholder and pay them dividends, provided that those dividends aren’t subject to tax on split income (TOSI). This is often feasible if the partner genuinely worked for the corporation, if you are retired, or if you meet certain age criteria (for example, being 65 or older).
2. Corporations may be able to pay capital dividends out of a notional capital dividend account that accumulates from past tax-free portions of capital gains.
3. When a corporation pays taxable dividends, it can trigger refundable corporate tax mechanisms that partially or fully offset corporate taxes previously paid; the interaction between corporate refunds and your personal tax rate can affect the overall tax burden.

Other practical costs include land transfer tax and legal fees for the transfer, potential impacts on home insurance, and changes to your ability to borrow against the property (such as a HELOC). You may also need to keep the corporation active longer than you planned, which adds ongoing accounting and legal costs.

Tax rules and policy can change over time. For example, recent changes to housing-related rules have altered filing requirements for certain owners; similar adjustments could be introduced in future that affect unconventional arrangements like holding a principal residence in a corporation.

Should you transfer a home into a corporation?

There is no universal answer. Whether you end up better or worse off depends on many variables: expected real estate appreciation, your age and retirement plans, personal and corporate income levels, other assets, expected future cash needs, and your tolerance for ongoing corporate compliance costs.

It’s important to look beyond the immediate appeal of accessing corporate cash “tax-free.” That short-term benefit can be outweighed by higher future taxes, added administrative costs, and lost personal tax exemptions. In many cases, alternative strategies — such as taking dividends when your personal income is relatively low, or using shareholder loans and other planned distributions — will be less disruptive and more tax-effective than moving your home into the corporation.

For a decision like this, you should run detailed numbers or consult a qualified tax and financial advisor who can model short- and long-term outcomes tailored to your circumstances. A careful comparison will reveal whether the small immediate gain justifies the potential long-term costs and complexity.

Read more about owning a corporation:

• Investing inside a corporation: what you need to know
• Should you buy real estate through a corporation?
• When should you withdraw money from your corporation to invest?
• Should you leave corporate savings in your company?