Tom West – Real Estate Corporations
Quick-Show Notes:
In this episode of The Millionaire’s Lawyer, JP and Tom West discuss:
Both JP and Tom West believe that it is a wonderful idea to incorporate your real estate business; a No Brainer to anyone making more than 200K.
If you are claiming your income on your personal taxes you are in an insanely high tax bracket.
Should you incorporate you are considered a small business and receive significantly lower tax rates. Basically 40% of taxes off of the top!!
- For example, the tax rate on 200K personally is 53%; through the corporation, it is 12.2% since you are considered a small business.
The owner, yourself, could be paid in numerous ways as a shareholder. Tom mentions if you do it by dividend you could have major tax savings.
- Example. You make 100K, have 20K of expenses. there is 80K left over. You pay yourself a 40K dividend and avoid all taxes on it
Having a corporation allows you to save within it, and because you will be saving 40% of your current taxes, designate a small portion to go into a savings account for your future.
Once you file your taxes for your first year, payments will be divided out for the next few years allowing equalization in expenses.
You have to pay CPP no matter what you do – sole proprietor or incorporated, but the corporation will pay less in taxes.
Income Split
- be credible to the revenue agency
- Allows you to issue a Preferred Share
- Relieves taxes on Income Rules
- A dividend of 40K is like a salary of 53K
The downside to Incorporations:
- Ongoing paperwork
- You own a piece of the business, you are not the business anymore
- Reporting requirements are higher
- Corporate tax returns cost more than personal
- Compliance requirements
Section 85 allows you to roll over assets to the corporation, allowing you to deduct those.
Make sure that your relationship to the brokerage is CLEAR, have the proper documentation with the proper language
Having a corporation protects you personally
The Personal Real Estate Corporations will allow you to have your children involved, and this is a great way to have flexibility in the future and allows for more planning opportunities
As a corporation, you have the flexibility to choose your year-end.
Really good to have communication with your professional team often, and allow them to communicate with each other to make sure all bases are covered on all levels
Key Takeaways
From this episode of The Millionaires Lawyer with Tom West:
- Greg suggests to think of all investments as a 10-year investment, not a 10-day investment.
- Risk is an element of time
- Don’t sell your portfolio when down, let things bounce back!
- Make sure you do your correct due diligence
Connect with Tom West:
Website
(613) 425-8871
tom@swcpacga.com