Rental Property in a Corporation or Personally
Decide before you close, because changing your mind later costs land transfer tax on the full value. Compare the annual after-tax position, the deferral if you reinvest, the small business deduction your operating company loses, and the difference over the whole holding period.
difference over the period
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What the Property Actually Earns
| Item | Basis | Amount |
|---|
Personally Against Corporately, Each Year
| Step | Basis | Personally | In a Corporation |
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What It Costs Your Operating Company
| Item | Basis | Amount |
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At Exit
| Step | Basis | Personally | In a Corporation |
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The Whole Holding Period
| Item | Basis | Personally | In a Corporation |
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Points That Decide This
What to Do Next
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Disclaimer: Rental income earned by a corporation is income from property, taxed in Ontario at 50.17% with 30.67% refundable, unless the corporation employs more than five full-time employees in the business throughout the year, in which case it is active business income at 11.2% on the first $500,000. The small business deduction grind reduces the limit by $5 for every $1 of adjusted aggregate investment income above $50,000 across the associated group, eliminating it entirely at $150,000. Dividends are modelled as non-eligible at 47.74% with a dividend refund of 38.33% limited by the refundable pool. Mortgage interest is calculated on the opening balance and does not amortise. Capital cost allowance is not modelled, as it cannot create or increase a rental loss and generates recapture on sale. Land transfer tax is shown at Ontario rates only. This page is general information, not tax advice.
The Assumption That Costs Investors the Most
Almost everyone who asks this question expects the 11.2% small business rate. Rental income does not get it. Income from property earned by a corporation is investment income, taxed in Ontario at 50.17%, unless the corporation employs more than five full-time employees in the business throughout the year.
More than five full-time employees is a high bar. A single rental, a duplex or a handful of units will not meet it. A property manager on contract is not an employee. Most investors reading this are firmly in the 50.17% column.
| Situation | Corporate Rate |
|---|---|
| One rental, or several, with no employees | 50.17%, with 30.67% refundable |
| A property manager engaged as a contractor | 50.17%, contractors are not employees |
| Three or four full-time staff | 50.17%, the test is more than five |
| An apartment building with more than five full-time staff | 11.2% on the first $500,000 |
The Real Trade: Reinvesting Against Spending
The corporate rate looks brutal until you notice that 30.67% of it is refundable. The tax is a prepayment, not a permanent cost, and it comes back when a taxable dividend is paid. What changes is timing, and timing is exactly what matters to someone building a portfolio.
| What You Do With $100 of Rental Profit | Personally at 53.53% | In a Corporation |
|---|---|---|
| Keep it to buy the next property | $46.47 | $49.83 |
| Take it out and spend it | $46.47 | $42.07 |
That is the whole decision in six numbers. A corporation leaves you more to reinvest and less to spend. If you are compounding into a portfolio, the corporation is genuinely ahead. If you need the rent to live on, it is behind by about four points every year.
The Cost Nobody Puts in the Analysis
If you already own an operating company, corporate rental income does something else. Adjusted aggregate investment income above $50,000 across the associated group grinds the small business limit by $5 for every $1, wiping it out entirely at $150,000.
The extra tax does not land on the rental. It lands on your operating company, where income that was being taxed at 11.2% moves to 26.5%.
| Rental Profit in the Corporation | Small Business Limit Lost | Extra Tax at $400,000 of Active Income |
|---|---|---|
| $50,000 | Nil | Nil |
| $80,000 | $150,000 | $21,450 |
| $120,000 | $350,000 | $50,050 |
| $150,000 or more | The entire $500,000 | $57,200 |
A separate rental corporation does not avoid this. Associated corporations share one limit and their investment income is aggregated, so putting the rental in a different company changes nothing.
What the Corporation Does Better
- The capital dividend account. Half of any capital gain goes to the capital dividend account and comes out completely tax free. On a $1,000,000 gain that is $500,000 out of the corporation with no personal tax at all.
- Creditor protection. A property in a corporation is separated from your personal assets, and from your other properties if each sits in its own company.
- Co-investors. Shares are far cleaner than tenancy in common when several people are involved.
- Succession. Shares transfer more easily than title, and an estate freeze becomes possible.
- Reinvestment speed. More after-tax cash retained each year, which compounds.
What Personal Ownership Does Better
- Losses are usable immediately against your other income. A corporation carries them forward with nothing to offset.
- Better financing. Lower rates, longer amortisation, smaller down payments and far more lenders willing to look at it.
- Lower cost. No T2, no financial statements, no annual return, no separate bookkeeping.
- The principal residence exemption stays available if the property ever becomes your home.
- More in your pocket if you are drawing the rent rather than reinvesting it.
Decide Before Closing
Changing your mind later is expensive. Moving a property into a corporation afterwards means land transfer tax on its full market value, which on a $900,000 property is about $13,475 in Ontario and roughly double inside Toronto. It also triggers a deemed sale at market value and recapture of any depreciation claimed. A section 85 election defers the income tax but never the land transfer tax.
Speak to the Lender First
The tax analysis is often decided by the mortgage, not the tax. A corporate borrower usually faces a personal guarantee, a higher rate, a shorter amortisation and a larger down payment, and a number of lenders will not lend to a single-property corporation at all.
An extra half a point on a $650,000 mortgage is $3,250 a year, which is larger than most of the tax differences on this page. Confirm what the corporation can actually borrow before choosing the structure around it.
A Word on Depreciation
Capital cost allowance on a rental cannot create or increase a rental loss, and everything claimed comes back as recapture in the year you sell, taxed as ordinary income rather than as a capital gain. It moves tax between years rather than reducing it, and it is not modelled here for that reason.
What This Calculator Does Not Cover
- Mortgage amortisation, since interest is calculated on the opening balance rather than declining
- Capital cost allowance and recapture, which shift tax between years
- Multiple properties and how the associated group interacts across them
- Non-resident ownership, which has its own withholding and filing regime
- Provinces other than Ontario
- HST, which does not apply to long-term residential rent but does apply to commercial
The structure is easy to choose and expensive to change. Get the comparison done before you sign, including what your lender will actually do. Our real estate accounting service covers the structure decision, the corporate setup and the annual filings.
Frequently Asked Questions
Common questions from Ontario property investors.
Related Calculators and Guides
More tools for Ontario property investors.
Choose the Structure Before You Sign the Offer
Send us the purchase details, your operating company position and what your lender has said. We will run the comparison properly, set up the corporation if it is the right answer, and tell you plainly if it is not.