14) Holdco Registration
Holding Companies
When purchasing real estate, you can buy the property under your personal name or you can buy it under under a corporation, commonly referred to as a “Holding Company” (Holdco for short).
For self-employed people, the amount of tax paid using a holding company will be very similar to your personal tax rate after you consider the dividend tax rate and subsequent personal tax rate. The main benefit to purchasing real estate using a holding company is that you are allowed to loan or transfer the retained earnings you have in your corporation to an arms-length corporation tax-free! This allows you to use pre-tax dollars for your investments, versus paying tax on the money you take out of your business and then investing - you start with a bigger initial investment.
Registering Your Holding Company
Any corporation operating in Alberta (including real estate rentals) must be registered to conduct business (including real estate rentals). Therefore if you bought the property under a corporation that is registered in another provide (say Ontario or BC), it must be extra-provincially registered in Alberta before closing in order to legally operate.
I recommend having your real estate lawyer do this for you and is a quick process (a few days at most). There are annual filing requirements in the province of Alberta and you should talk to your lawyer if they can manage this for you, including using their office address as your corporation’s mailing address.
Consider A Holdco?
For the majority of people, it is better to own the property under your personal name versus under a corporation but I am not an accountant each person’s situation is unique, so consult with a professional accountant to determine if using a holdco is right for you.