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If you are a self-employed client who owns your own business, you may have chosen to set that business up as a corporation. This means the business operates as essentially its own person. They have income through business revenue and expenses from marketing costs, materials, office space, etc.

There are a few benefits to putting a mortgage under the corporation instead of your individual self:

  1. Corporations tend to pay a lower tax rate than the personal income tax rate. Corporations only pay taxes on net business income.
  2. Lenders can look at the business income or personal income.
  3. Adding the net business income or the personal income from year 1 and year 2 and dividing it by two is the income a lender will associate with that borrower. Corporations with multiple shareholders will affect this process.

There are two ways one can go about this type of corporate mortgage. Is the corporation the operating company or acts as the holding company?

Mortgages and Operating Companies

As with any mortgage, there are considerations, and more so when looking to put your mortgage under your corporate umbrella. The lender will package your application differently, even though you essentially qualify as if you were buying a property in your name. You would be instead qualifying as a corporation with a personal guarantee from yourself.

It is also possible to do a mortgage deal under your personal name but utilize both personal and corporate income. Lenders can do this by looking at both personal T1 generals and respective NOA, plus you can qualify by looking at the Net Business Income before taxes as seen on company financials.

When it comes to getting a mortgage under an operating company (versus a holding company), you may encounter limitations with the lenders that provide this type of deal. You would be looking at an Alt-A (B Lender) to finance this particular mortgage, which may come with higher interest rates.

Mortgages and Holding Companies

When it comes to getting a mortgage under a holding company, you will find things are a bit easier. Having a mortgage under a holding company removes limitations or liability from the operating company with regard to the mortgage.

You must meet the definition of a Personal Holding Company (PHC) or Personal Investment Company (PIC) per the bank. This is typically considered “a Canadian incorporated entity established by an individual or individuals for the purpose of conducting investment activities, which can include holding real estate, and/or investments. Personal Holding or Investment Companies, and the owner of the PHC or PIC must qualify personally, and sign as covenantor”.

Some additional reasons to consider a mortgage under a corporation or holding company include:

  1. To flip properties rather than hold them as rental revenue.
  2. Retaining corporate profit that can be used to buy a property without withdrawing money personally and incurring personal tax.

The mortgage application must list ALL DIRECTORS who are listed on the corporation. This may be something to consider, especially for larger corporations.

For some individuals, the benefits might not be enough to convince them to put their property under the corporation. For others, it may be the perfect solution.

Contact Vinil to find out how lenders will view your income if you have your business set up as a corporation.

oration but for others, it may be the perfect solution.