Canada Day Tax Special

July 1st, 2008 Chris

It’s Canada Day today here so in celebration, I’m giving a tip we learned on the tax front specifically for Canada (it may be applicable for the U.S. and other places, but I have no idea).

For many years, our business rented office space in a near by, traditional office building. Colleen had discovered that she really was going to be more productive away from home and with the addition of one-employee, it was a must. So for a few years, each month a rent cheque got cut for a non-trivial amount.

Then one day, we were walking down the street near our house and saw a new condo-development going up. And then an idea hit Colleen – what if we bought a condo and used it as our office! The long and short of it, we now walk two blocks from our home to the office – and saving lots of money in the process.

Here is what we did:

• Purchase the condo personally.
• Rent the condo to the business for fair market value (keeps the tax man happy).

So, we end up paying rent from the company to ourselves, which we then declare as rental income. And, as a consequence of the fact we didn’t put a lot of money down for the condo, our interest expense is high and we don’t actually net much rental income (and thus, don’t pay alot of tax on it). But in the meantime, our condo is being paid off by the rent from the business. Gory rental income details are available from Revenue Canada. You’ll also want to check local bylaws on home-based businesses as well as condo regulations to ensure you’re not doing something with your business that will get you into trouble later…

And remember – if you don’t have a lot to put down or are worried about what the bank will say, you’ll have a signed lease to show them. With some history in your business’s ability to pay rent, they’ll likely have no problem in giving you that mortgage.

And it sure beats paying rent.

C.

Posted in Financial | No Comments »