How to Pay Less Tax on Rental Properties

Let’s face it! We all want to pay fewer taxes. The first step always is to consult with your tax accountant and figure out a financial plan. SRJ Chartered Professional accountants assist with figuring out your financial goals and assist with working out your tax obligations and how to reduce them. 

One way to reduce what you owe is through a holding company with investments in your rental real estate property. But what is a holding company and how can it help you? 

If you have investments in private and public companies, bonds, term deposits and bonds, a holding company can offer a layer of asset protection. It is also recommended to use a holding company for real estate investments to help with estate planning, tax deferral, tax savings and help with the Lifetime Capital Gains Exemption. Specifications need to be met for the LCGE claim and a holding company can assist with this. The goal of a holding company is to hold your investment(s). For a full picture on how you can reduce your taxes owed speak to SRJ Chartered Professional Accountants.

Having a holding company for real estate investments is great asset protection. With the funds being received you can transfer the amounts to the holding company real estate through a tax-free dividend. Your assets are protected because the funds are held as a separate legal entity. Anyone going after your assets/funds would find it very difficult to do so.

There are many additional benefits by having a holding company real estate hold your investment funds. What you end up saving in taxes depends on multiple factors – the province of your residence, the level/amount of corporate and personal income and also the type of income that was earned. Investing your excess cash in a holding company real estate can reduce your taxes due to the lower tax rate of the holding company, especially if you have a high income. Rates vary across provinces and SRJ Chartered Professional Accountants can provide you with a full picture of how incorporating your holding company can benefit you and how to best protect your rental property income.

Tax Deferrals are another way to pay fewer taxes on your rental properties. Tax deferrals supply flexibility to the timing of when an income is earned by transferring funds to the holding company for your real estate investments and leaving those funds in the incorporation, you can defer your taxes until they are taken out of the holding company. The longer the funds are left in the company the less you owe in taxes. You can also defer the income by leaving it in the holding company until a later time when you may end up having a lower income one year and paying yourself out your dividend in the lower-income year. This will lower your overall tax bill on a high-income year. For example, Steve has a high income in 2020 due to his regular income as well as his various side jobs and business. He decides to take a break from work in the following year. Steve can transfer his rental property income to the holding company and defer his taxes by withdrawing the funds in 2021 when he will have a lower income due to his break from work.

If you have a lot of funds built up in your incorporated holding company for real estate, you can purchase a rental property through the holding company. This asset has been purchased with pre-tax dollars since it was not purchased through your personal income. If you are already at the top of your tax bracket, purchasing through your incorporated holding company can give you more funds to purchase and also defer the taxes owed on the property. Any income earned on a rental property bought through your holding company will be an addition to your corporation’s profit and loss. This becomes part of your T2 corporate income tax return. Speak to your tax accountants at SRJ Chartered Professional Accountants to determine whether this would be the best course of action for you.

As a rental real estate investor, you need to consider the tax rates for your corporation depending on the province you live in. Whether it is beneficial for you to have a holding company or whether it works to your benefit to have a property held personally. Incorporating your holding company has many advantages but it is best to speak to your tax accountants. 

Every situation is different. Whether you already own a rental property or multiple rental properties, or you could be looking into purchasing your first rental property, We advise that you first speak to SRJ Chartered Professional Accountants. Your taxation experts, we operate virtually for clients all over the world and our physical offices are located in Toronto and Mississauga. If you have further questions or would like a consultation to further discuss your financial plans, please contact SRJ Chartered Professional Accountants at 647-725-2537 or send an email to 

Frequently Asked Questions

How do I avoid paying taxes on a rental property?

A holding company can be beneficial when it comes to tax savings and tax deferrals. You can deduct capital cost allowance against the rental income to reduce your taxable income to zero if you have enough undepreciated capital cost remaining.  The specifics on how to keep your taxes minimal will depend on the property, income generated and expenses available to deduct.  Our team at SRJ Chartered Professional Accountants can help with this analysis through a real estate tax consultation.

How much taxes do I pay on a rental property?

How much you end up paying in taxes on your rental property is dependent on various financial factors. What was your income for that year? Do you have a holding company that the rental was purchased through? These are a couple of variants that can affect your taxes. For a full picture of your personal financial situation, speak to your tax accountant who understands the tax implications of rental properties within Toronto, Ontario, or the rest of Canada.

Does rental property help taxes?

Rental properties affect your taxes and it’s a different situation for everyone depending on various financial factors. i.e your income bracket.  If you own a rental property in Canada and the property generates a taxable loss then you can use the loss to offset other personal income. 

How is rental income taxed in Canada?

How your rental income is taxed in Canada depends on the province of your residence as it varies across Canada. For the exact rates and how you will be taxed speak to SRJ Chartered Professional Accountants.