In your case, although, Parmod, there’s no tax to switch your private home to your company assuming it qualifies as your principal residence for all years of possession. The true query is: must you?
Self-employed? Tips on how to file your taxes
Personally using a company asset
As you’ve famous, chances are you’ll have to pay lease to the company after the switch. The explanation: Should you use a company asset for private use, you both have to pay for that utilization, or embrace a taxable profit in your private revenue for the 12 months.
Within the case of actual property, paying the company can be based mostly on honest market worth for lease. The lease can be thought-about taxable revenue to the company with a tax price of round 50% (the speed varies by province and territory).
Should you didn’t pay lease, otherwise you paid beneath honest market worth, chances are you’ll want so as to add a taxable profit to your T4 slip. You’ll should report that profit as employment revenue, triggering private tax.
On account of shareholder
Should you switch an asset to a company, the company owes you cash in return. Should you switch $1,000 to your company checking account out of your private checking account, for instance, the company usually owes you again that quantity tax-free.
The identical could apply should you switch a $1 million asset like your private home to a company. The company could then owe you $1 million tax-free. This may be an choice to take money out of a company as a substitute of promoting a private asset you want to preserve.
Principal residence exemption: private vs. company
The principal residence exemption will be claimed by a person taxpayer in Canada, however not a company. So, proudly owning your private home in your company, Parmod, will give rise to future capital positive aspects tax.
The inclusion price for capital positive aspects is about to extend from one-half to two-thirds based mostly on the 2024 federal funds, although this transformation isn’t but enacted into legislation. As soon as it has been, it might trigger the tax price on a company capital acquire to rise from about 25% to about 33%, although it might be barely decrease or increased relying on the company’s province of residence.