Saturday Star - - INSIGHT -

YOU CAN own ren­tal prop­erty ei­ther in your per­sonal ca­pac­ity or in the name of a com­pany, or in a trust. It’s a per­sonal de­ci­sion, Michelle Dick­ens says, and it de­pends on how big you want to grow in own­ing and let­ting prop­er­ties. You need to con­sider the fol­low­ing:

• In each case, you are “mak­ing money off other peo­ple’s money” by buy­ing a prop­erty with a loan and get­ting the ten­ant to re­pay the loan on your be­half.

• It’s dif­fi­cult to get a num­ber of mort­gage bonds with the banks if you are op­er­at­ing in your per­sonal ca­pac­ity, Dick­ens says.

• If you are op­er­at­ing in your per­sonal ca­pac­ity, you will pay in­come tax at your mar­ginal rate (up to 45%) on your ren­tal in­come, whereas a com­pany will pay tax on prof­its at a flat rate of 28%.

• If you own sev­eral prop­er­ties within a com­pany struc­ture, losses on one prop­erty can be off­set against gains on oth­ers when re­port­ing to the tax­man, whereas they have to be re­ported sep­a­rately if you are op­er­at­ing as an in­di­vid­ual.

• Re­gard­ing cap­i­tal gains tax on sell­ing a prop­erty, com­pa­nies pay a flat 22.4%, whereas in­di­vid­u­als pay an ef­fec­tive 18% on the high­est 45% mar­ginal rate (not al­low­ing for ex­emp­tions).

• If buy­ing off-plan, ei­ther as an in­di­vid­ual or a com­pany, you have a tax­able al­lowance un­der sec­tion 13 of the In­come Tax Act that al­lows you to claim 55% of the pur­chase price over five years.

• Trusts have largely be­come un­eco­nom­i­cal ve­hi­cles in which to hold ren­tal prop­er­ties be­cause of their high tax rates.

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