Purchasing Real Estate With Holding Company: Costs, Pros & Cons

Buying real estate through a holding company is becoming more common in Ontario, especially among investors and business owners. This setup can offer benefits, like asset protection, tax planning, and easier estate transfers.

But it also comes with added responsibilities, legal obligations, and higher costs.

Before moving forward, it’s important to understand how this structure works and whether it fits your goals. Not every property deal needs a holding company, and the wrong setup could cost more in the long run.

This article explains the advantages and disadvantages of purchasing real estate using a holding company, based on current laws and common practices in Ontario.

How a Holding Company Works for Real Estate?

A holding company is a corporation designed to own assets—like real estate or shares in other companies—without conducting day-to-day business such as selling goods or services.

In Ontario, this structure is commonly used for real estate investment, offering a legal layer between your personal assets and the properties held by the company.

When you use a holding company to purchase property, the company becomes the registered owner. You control the company through its shares and directors, rather than owning the property directly. This means the title is in the company’s name, but you’re still in control via your ownership of the company.

People often set up a holding company to protect their personal assets, plan their taxes, or organize estate transfers. While this method has real benefits, it also brings added legal responsibilities.

Understanding how this setup works in Ontario is vital before deciding if it’s right for you.

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Advantages of Purchasing Real Estate Using a Holding Company

Buying real estate through a holding company clearly appeals to many property investors in Ontario. In fact, nearly 80 percent of wealthy Canadians use this structure for their investments—highlighting how popular and trusted it can be for managing property assets.

This approach can give you better control over taxes, help protect your personal assets, and support long-term planning. It does add some complexity, but many choose this route for the flexibility and clear legal benefits it offers.

Let’s look at the main reasons people choose a holding company to own property in Ontario.

1. Asset Protection

One of the main benefits is asset protection. If tenants sue over an injury or you get sued for something related to the property, only the company’s assets are at risk. Your personal assets—like savings, home, and car—stay protected. Holding property under a separate legal entity helps reduce personal liability.

2. Tax Deferral and Income Splitting

Holding companies allow for tax-efficient planning. You can move profit from an operating company into the holding company tax-free and decide when to withdraw personally. This can save on taxes, especially if you delay personal income until you are in a lower tax bracket.

You can also allocate income among family members to lower the overall tax load. However, beware of tax-on-split-income (TOSI) rules.

3. Possible Lower Tax Rates on Active Business Income

When flipping properties or running a property management business, the corporation’s income may be taxed at lower rates. A holding company’s business income avoids the high passive income tax and keeps more money for future investments.

4. Estate Planning and Succession

A holding company helps with estate freezes. You can lock in the current value of shares and pass future gains to heirs. This simplifies passing on property and may reduce estate taxes. It may also sidestep probate fees on property owned by the company.

5. Privacy and Transferability

Titles held by a holding company don’t show individual owners. This means your personal identity stays private. It also makes selling or transferring ownership simpler—share sale rather than property sale.

6. Legal Requirement for Corporate Land Registry

Ontario law requires holding companies to keep a public record of their land ownership interests. This includes dates of purchase and supporting documents.

Disadvantages of Purchasing Real Estate Using a Holding Company

While holding companies offer useful benefits, they also come with downsides that you shouldn’t ignore.

In Ontario, this structure adds costs, legal duties, and tax complications that can outweigh the benefits—especially if you’re not investing at a larger scale. Before setting one up, it’s important to understand the risks and limits that come with using a corporation to buy property.

Here’s what to keep in mind.

1. Higher Costs and Administrative Burden

Forming and maintaining a holding company adds cost. You must file incorporation documents, legal agreements, annual financial statements, and tax returns. Costs include accounting, legal, and government fees—yearly—whether or not your property makes money.

2. Passive Income Is Taxed at High Rates

If your holding company earns passive rental income, it gets taxed at a high corporate rate — often similar to the top personal tax rate. Unlike active business income, this does not benefit from small business tax cuts.

3. Loss of Principal Residence Exemption

You must give up the principal residence exemption on your home if it’s owned by a holding company. This can lead to a large tax bill when selling.

4. Double Taxation

When you take money out of the holding company, the funds are taxed again as personal income. This can result in double taxation — once at the corporate level and again at the personal level.

5. Mortgage Financing Challenges

Lenders often demand a personal guarantee for mortgages under a holding company. This can increase interest rates and restrict borrowing ability. It may be harder to qualify for mortgages or better terms.

6. Complexity in Tax Planning

Corporate structures bring complex tax rules. You’ll need expert advice to navigate TOSI, capital gains exemptions, and passive income rules. Without guidance, you could make expensive mistakes.

7. Limited Deductibility of Rental Losses

Rental income is passive. If your holding company loses money, you often can’t offset it against other income. You have to carry forward the loss within the company.

When a Holding Company Might Make Sense

There are certain situations where using a holding company to buy real estate in Ontario might be a smart move. If you’re investing in multiple properties or looking for long-term planning advantages, this structure may work well for you. Here are some common reasons people choose this route.

• You invest in multiple properties and want liability protection for each.
• You plan to flip or develop properties actively and want lower tax rates.
• You’re setting up long-term estate planning for smooth wealth transfer.
• You want to defer taxes and control when you take profits.
• You need privacy for the property’s legal title.

When You Might Want to Buy Personally Instead

Not everyone needs a holding company. For many buyers, especially those with just one or two properties, buying in their personal name is easier and more cost-effective. Here are a few cases where personal ownership may be the better choice.

• You’re buying your principal residence.
• You own one or two rental properties.
• You want simple management and low costs.
• You prefer claiming rental losses on your personal tax return.

You want straightforward mortgage approval.

Key Tips for Buying Property Through a Holding Company in Ontario

If you’re planning to buy real estate using a holding company in Ontario, it’s important to do things the right way from the start. This structure offers flexibility, but it also comes with strict legal and financial responsibilities. Mistakes can be costly, so careful planning and regular reviews are essential.

Here are a few practical tips to guide you:

1. Talk to professionals early

Before setting anything up, speak with a real estate lawyer and a tax accountant who understands Ontario corporate and property law. Everyone’s situation is different, and what works for one investor might not work for another.

2. Make sure the structure fits your goals

Using a holding company can protect assets and offer tax advantages, but it’s not always necessary. If you’re only buying one property or don’t plan to build a large portfolio, personal ownership may be simpler and more cost-effective.

3. Understand mortgage requirements

Not all lenders treat corporate borrowers the same. Many will ask for a personal guarantee, which means you’re still responsible if the company can’t repay the mortgage. Interest rates and loan terms might also be less flexible than with personal borrowing.

4. Keep your records in order

Holding companies must stay compliant with Ontario corporate laws. This includes updating your property registry, maintaining accurate share records, and filing annual returns. Poor record-keeping can lead to legal problems or tax penalties later.

5. Review your setup each year

Laws change, and so do your financial goals. What made sense two years ago might not be ideal now. Make it a habit to review your company’s structure, income, and tax strategy annually with your accountant and lawyer.

Conclusion

Using a holding company to purchase real estate in Ontario comes with clear advantages—asset protection, tax planning, estate strategies, and privacy. But it also carries responsibilities—higher costs, complex tax rules, double taxation, and financing hurdles.

Choosing this path should not be done lightly. It must align with your long-term property and financial goals.

The best decision is an informed one, reached with professional guidance and careful planning. If you want help understanding your options or setting up a holding company, feel free to reach out.

The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.