A: IMO, flips (including properties for lease option) should absolutely be in a corporation. Active income is taxed at around 14% in a corporation, and flips are active income.
Regular rentals can go either way, and - as they say - it is a very personal decision depending on your current financial situation and your plans for future expansion.
If you plan to build a large portfolio:
- Using a corporation allows for more effective tax and estate planning.
- As mentioned, active income is taxed at 14%, which could represent a huge tax savings.
- If you are in a high personal tax bracket, you may still save taxes on passive rental income within a corporation.
- These savings can be reinvested into other properties, possibly allowing you to build your portfolio more quickly.
- Yes, you are taxed corporately and then again personally if and when you take a salary or dividend from your corporation, but you can choose when to do that. If you buy property in your personal name, you must personally declare the income when it is earned, possibly pushing you into a higher tax bracket.
- Some people find they have difficulty qualifying for mortgages for their corporations. The key is to deal directly with specialists who know how to work with corporate mortgages. Some mortgage brokers may be able to help, but with some financial institutions one must work directly with a bank’s mortgage specialist (possibly in the commercial division).
If you plan to stay small, then rentals in personal name should be fine tax-wise.