INVESTING IN REAL ESTATE

1
INVESTING IN REAL ESTATE

• Concerns For CA4IT Associates and Their Clients

Dennis R. Dowling Professional Corporation
2
WHY IT IS A CONCERN

• Lack of confidence in the current state of the
  stock market leads many contractors to consider
  investing in real estate
• Is it better to invest personally or use the
  contracting company?

3
INDIVIDUAL OWNERSHIP ADVANTAGES

• Claim CCA to reduce taxable income
• A positive cash flow can be used for other
  purposes
• Top Alta tax rate about 40, corporate rate
  closer to 50 for rental income

4
INDIVIDUAL OWNERSHIP DISADVANTAGES

• Funds are generally only available from the
  corporation, requiring additional salary pushing
  individual income to a higher tax bracket

5
CORPORATE OWNERSHIP ADVANTAGES

• Limited liability from debts of ownership
• Income taxed at low rates can be used for
  purchase and finance cash deficiencies
• Succession easier through a corporation
• Tax free loan to a related corporation may be an
  alternative to using the operating company

6
CORPORATE OWNERSHIP DISADVANTAGES

• Net taxable income subject to top corporate tax
  rates (reduce only by paying dividends)
• May preclude company from being a qualified small
  business corporation (QSBC) no capital gain
  exemption
• Possible double taxation on death of shareholder

7
CORPORATE OWNERSHIP DISADVANTAGES (Contd)

• Losses in a separate company may be trapped and
  not useable against other income
• Asset can only be transferred out of company at
  FMV, but, can be rolled into a corporation
  tax-free if a change is warranted

8
CONCLUSIONS?????

• If the client has funds outside the company,
  investment should likely be made personally
• If funds are sourced inside the company,
  investment should be made inside the corporation
  or a related company
• Consider level of investment required