Can I Sell My House To My Corporation in Canada?

Selling Your Personal Home to Your Business

Many business owners wonder about the possibility of transferring personal assets to their company. The question, can I sell my house to my corporation in Canada, is a common one for entrepreneurs looking at asset management and tax planning. The short answer is yes, you can. The law permits you to sell your personal residence to a corporation that you own. This transaction is a formal sale, not a simple name change on a document. It requires careful planning because it triggers significant legal and tax events.

This process involves more than just signing papers. Your corporation must purchase the property at its current Fair Market Value. You will need lawyers to handle the title transfer and accountants to manage the financial and tax implications. This decision is not right for everyone. It introduces new responsibilities and costs. Understanding every step is essential before you commit. The benefits might seem attractive, but the potential drawbacks can be substantial if the transaction is not structured correctly. You must consult with professionals to analyze your specific financial situation.

The Core Process

Selling your home to your corporation is a regulated transaction. You must treat the sale as an “arm’s length” deal. This means the terms should be the same as if you were selling to an unrelated third party. The most critical element is the sale price. The law requires you to use the property’s Fair Market Value (FMV). FMV is the highest price you could get for your house in an open and unrestricted market between a willing buyer and a willing seller.

To establish FMV, you must obtain a professional appraisal from a certified appraiser. This independent valuation provides objective proof of the property’s worth for the Canada Revenue Agency (CRA). Once you establish the price, a real estate lawyer facilitates the legal transfer. The lawyer will draft an Agreement of Purchase and Sale, conduct a title search, and register the new ownership. Your corporation will then legally own the property. Land Transfer Tax is also payable on the purchase, just as with any other property sale. Your corporation is responsible for paying this tax based on the FMV of the home.

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What Ownership Means for Your Corporation

Once your corporation buys your house, the property becomes a corporate asset. The corporation’s purchase price, the FMV, becomes its “adjusted cost base.” This figure is important for the future. If the corporation later sells the property, it will calculate its own capital gain based on this cost. The corporation can also claim depreciation, known as Capital Cost Allowance (CCA), on the building portion of the property if it is used to generate income, such as rental income. This can reduce the corporation’s taxable income each year.

A major change occurs if you continue to live in the home. You cannot live there for free. The corporation must charge you, the shareholder, rent at Fair Market Value. This rental income is taxable to the corporation. You must make regular rent payments from your personal funds to the corporation’s bank account. Failure to do this results in a “shareholder benefit.” The CRA would add the value of the rent you should have paid to your personal income, and you would pay tax on it without the corporation getting a corresponding deduction. This makes compliance very important.

The Role of Fair Market Value

The concept of Fair Market Value is central to this entire transaction. The CRA scrutinizes non-arm’s length transactions very closely to ensure the price is fair. Deviating from FMV creates serious tax problems for both you and your corporation. An independent, professional appraisal is your best defence against a CRA challenge. The appraiser will look at recent sales of comparable properties in your area to determine an accurate value for your home. This document provides the necessary evidence to support the sale price you use.

Let’s examine the risks of using an incorrect value. If you sell the house to your corporation for *less* than FMV, the CRA can still deem your personal sale price to be the FMV for calculating your capital gain. However, the corporation’s cost base remains the lower, actual price paid. This mismatch could lead to a portion of the capital gain being taxed twice in the future. If you sell for *more* than FMV, you will pay personal tax on a larger capital gain than necessary. The CRA may also classify the amount paid above FMV as a taxable shareholder benefit, leading to immediate personal tax consequences.

Potential Advantages of Corporate Ownership

People consider this strategy for several reasons, often related to liability and planning. One of the main potential benefits is creditor protection. A corporation is a separate legal entity from its owners. Moving your home into your corporation can shield this valuable asset from personal creditors. If you face personal financial trouble or a lawsuit, creditors generally cannot seize corporate assets to satisfy personal debts. This separation can provide peace of mind for business owners in high-risk professions.

This structure can also be a tool for estate planning. Owning real estate inside a corporation can simplify the transfer of wealth to the next generation. It is often easier and more flexible to transfer corporate shares through a will or an estate freeze than it is to transfer direct ownership of a property. This may also help in managing probate fees, as the value of the home is contained within the value of the shares, which can be structured in a tax-efficient manner. For some, it can also be a way to manage rental income. If the corporation rents the property to a third party, the income is taxed at corporate rates, which might be lower than personal tax rates.

Weighing the Risks and Drawbacks

The potential benefits must be weighed against significant drawbacks. The most substantial risk is the loss of the Principal Residence Exemption for all future growth in the property’s value. Once the corporation owns the house, it can never qualify for the PRE, as this exemption is only available to individuals and certain trusts. When the corporation eventually sells the property, it will pay tax on 50% of the capital gain. Over many years, this tax liability can easily outweigh any initial benefits of the transfer.

The ongoing costs and administrative burden are also important. The corporation must maintain separate bank accounts, keep detailed financial records, and file an annual corporate tax return. This increases accounting fees. You will also pay legal fees for the initial transfer and may require ongoing legal advice. The requirement to pay yourself fair market rent is another complication. This creates a real cash flow from you to your company, and that rental income is taxed inside the corporation. This entire structure adds a layer of complexity to your financial life that you must be prepared to manage.

Conclusion

Deciding to sell your house to your corporation is a major financial step. As we have seen, the process is legally possible but filled with specific rules and serious tax implications. It is a strategy that offers potential advantages in creditor protection and estate planning. However, these benefits come at a cost. The loss of the Principal Residence Exemption on future appreciation is a significant deterrent for most homeowners. The added administrative complexity and annual costs for the corporation are also key factors to consider.

This transaction is not a simple DIY project. It is essential to get professional advice tailored to your unique circumstances. A qualified accountant can model the long-term tax outcomes, comparing the corporate ownership scenario to your current situation. A lawyer can explain the legal ramifications and ensure the title transfer is handled correctly. As a real estate agent, I can provide a professional market evaluation to help establish Fair Market Value. The choice depends on a careful analysis of the costs versus the benefits. A well-informed decision is your best protection.