How to Buy a Home with a Corporation in Canada

Allan Madan, CA
 Dec 8, 2010


If you are about to purchase a home and are self employed, then it is very important that you read this article, because I am going to tell you how to buy a home with your company’s money, tax-free.

The strategy entails taking money from your corporation and giving it to you on a tax-free basis in order to help you acquire a house that you plan to live in.

The Wrong Way – How to buy a home with a Corporation in Canada

Before I explain how the strategy works, let’s look at the wrong way to buy a home, which is a common mistake that many business owners make. The wrong way is to have your corporation pay a bonus or lump-sum salary payment to you. This way is ineffective, because approximately half of the payment must be remitted to the Canada Revenue Agency to pay for payroll taxes, leaving you with only 50% in your hands to purchase a home in Canada.

The Right Way – How to buy a home with a Corporation in Canada

The right way to purchase a home is to use an Employee Home Purchase Loan.

Here is how the strategy works – “How to buy a home with a Corporation in Canada”:

Step 1 – Loan

Your corporation makes a tax-free loan to you. The loan must be supported by a written agreement and there must be a mortgage in place. This means that the home is used as collateral for the loan. That’s not really a big concern, because it is highly unlikely that you are going to default on your own loan.

Step 2 – Interest

You must pay a reasonable amount of interest to your corporation in respect of the loan received. The amount of interest charged should be equal to the market rate of interest. For example, the market rate may be 2%, 3% or 4%. To determine the market rate, you can refer to the interest rates charged by major banks for mortgages.

Step 3 – Repayment Terms

There must be a reasonable repayment period for the loan, such as 10, 15 or 20 years. To determine the repayment period, refer to the amortization periods offered by major banks on conventional mortgages.

Step 4 – Employment

In order to qualify for an Employee Home Purchase Loan from your corporation, you must be an employee of your corporation. As such, an employment agreement is required and you must be receiving regular payroll cheques.

Conclusion – How to buy a home with a Corporation in Canada

In conclusion, the Employee Home Purchase Loan is an excellent answer to the question, “How to buy a home with a Corporation in Canada?”. This strategy allows you to take money from your corporation, without paying any tax, in order to purchase a home.

While this tax strategy sounds simple, it’s important that you engage the services of a Chartered Accountant in Mississauga or Toronto to ensure that it’s implemented properly. If there are errors, the CRA will include the loan proceeds in your taxable income, which defeats the whole purpose of the strategy.


The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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Comments 36

  1. I brought this up with my accountant as it seemed like a great option to taking funds out of our corporation that just sold a property. They sent me the below which seems to be a direct response to your proposal. Please comment.

    2008-0270201E5 — Sole Shareholder-Employee Housing Loan
    Date: December 16, 2008
    Window on Canadian Tax Commentary
    Income Tax Act: 15(2)
    Information Circulars: IC 70-6R5
    Information Circulars: 70-6R5

    In deciding whether a loan is received qua employee, the determinative
    factor is unlikely to be whether the recipient is the only employee. The
    fact that an individual is the only employee of a corporation does not
    mean, in and of itself, that a benefit is conferred qua employee.
    whether a loan to purchase a dwelling is conferred on an individual qua
    employee or qua shareholder is always a question of fact, which must be
    determined in each particular case.
    Generally, a benefit will be considered to be conferred qua employee if
    is reasonable to conclude that a benefit is conferred on an individual as
    part of a reasonable employee remuneration package. Where the
    is the only employee, the Agency will generally consider a loan to be
    received by virtue of employment where a shareholder-employee can show
    that employees with similar duties and responsibilities to another
    employer of similar size, but who are not shareholders of that other
    employer-corporation, receive loans of similar amounts under similar
    conditions as that granted to the shareholder-employee.

    1. Hi Marc,

      My understanding of the issue is that you’re the sole shareholder of the corporation and you want to know how you can prove that you received this loan in the capacity as an employee and not because of your shareholder status.

      There are two things we can look at:

      1. You have to prove that employees with similar duties and responsibilities to another employer of similar size and industry (but are not shareholders of that other corporation) are eligible to receive similar amounts as part of the home purchase loan. The problem with this is that companies may be reluctant to release private information.

      2. Are you being paid a fixed salary or dividends? If you are being paid a fixed salary, it would be easier for you to receive the loan without inclusion because the CRA will see that you’re employed. In addition, you would need to provide an audit trail, basically, proof that you are a employee which includes: employee contract, issued T4s, payroll remittances, a list of responsibilities as per position.

      What you can do is establish a company-wide policy that states employees in managerial positions are entitled to a specific loan amount per year that must be paid after a specific amount of time at the prescribed market interest rate and you set the terms of the policy. This further demonstrates that you’re not receiving the home purchase loan in your capacity as a shareholder.



  2. Hi Allan can the corporation lend money to the shareholder’s children to purchase a home? Assuming interest will be paid at the market rate and a loan term is established. I understand that gifting money from the corporation to the children is not permitted as the corporation needs to pay taxes on the income first.


    1. Hi David,

      Loans made to a child of a shareholder (even for a home purchase) will be included in the child’s income, and possibly attributed back to the parent. If the child is an adult and is working for the company as an employee, then a tax-free employee home loan could be made to the adult child, if certain conditions are met.


      Allan Madan, CPA, CA
      Tel: 905-268-0150

  3. Hi Allan,

    This sounds interesting. My question is, must my corporation lend me after tax dollars? Which is to say, does my corp lend me money which it has paid income tax on as profit or does it lend me pre tax money? This would seem to make a big difference, since, if i’m paying 26% on the cash through my corp as profit and then using 50% after tax personal income to repay that money, which was loaned to me by the corp, then i’m not really ahead of the game, am i?

    1. Hi Brennan,

      The corporation is paying you with after tax dollars. If all of the conditions are met, the employee home loan is not taxable to you.


      Allan Madan, CPA, CA
      Tel: 905-268-0150

  4. Hi Allan,

    Seems like a great idea. However, if my understanding is right, you are still required to pay back the loan. And to pay this back, you are getting funds from your salary from the corp after personal income tax has been paid. So what benefit do we truly gain with this strategy?

    The advantages I foresee is having the funds available for downpayment initially as a lump sum and then paying it off gradually over the years but you are still paying significant amount of tax (corporate tax for the initial principal and “personal income tax” to pay back the loan. This strategy allows for entry into housing market at an earlier point and defer taxes but not eliminate them.

    I’d appreciate if you could please clarify the above 🙂

    1. Hi Saurabh,

      You are correct in that you are taking advantage of tax deferral. But there can be absolute tax savings to you and your company by ‘income averaging’. Rather than withdraw a large sum of money from your corporation at one time (thereby increasing your marginal tax rate), you receive the withdrawal completely tax free for the purchase of a home (if certain conditions are met). Income averaging occurs, because salary paid to you over time (some of which will be used to pay back the loan annually) will not cause spikes in your income or marginal tax rate.


      Allan Madan, CPA, CA
      Tel: 905-268-0150

  5. I have a professional corp that has a 3 million dollar capital loss . Would it be prudent for me to buy a home with my corp versus personally. I make a large income amd receive an annual lump sum withdrawal each year from my corp for personal use.

    1. Hi Sarah,

      If you have sufficient retained earnings within your corporation to make a down payment on the purchase of a home, then it can make sense to have your corporation purchase a home. This way, you can use the capital losses available for carry-forward when you eventually sell the home for a profit. Additionally, you can use your corporate retained earnings to purchase your home tax free. You will have to pay fair market value rents to your corporation.

  6. Hi,I took the full price of the house out of my corporation and put it back 15 months and 8 days later.This is in Canada.Will I have to ay taxes on that^

    1. Hello Jude,

      Shareholder loans are taxable income unless they are repaid within 12 months from the year-end of the corporation.

      For example, if you borrowed $50,000 on March 1, 2015 from your corporation having a year end of December 31, 2015, you will not have to include the loan in your personal income so long as you repaid it in full by December 31, 2016.

      1. While the 1 year repayment rule may be applicable, people relying on it should be aware that it may not be available if the loan is part of a series of loans/repayments. So there is a pitfall if people think they can repay before the deadline and then immediately re-borrow the same or similar amount of funds.

        1. Hi Frank,

          This is a very valid point that you raised. If the original loan is part of a ‘series of loans or transactions’ then the original loan becomes taxable to the shareholder who received the loan.

  7. Hey Allan,

    Can I sell my home to a number corporation for the same amount as I purchased it so there is no taxable income as there are no capital gains? Say for $500 000. Then can that corporation sell the house to another corporation for $800 000 more so at $1300 000? So that I can use the one-time $800 000 capital gains tax exemption and have no taxable income left from number corporation 1. And then can I sell my house from number corporation 2 to the buyers for 2 million still being able to use my capital gains exemption. I bought my house for $500 000 and will sell for 2 million so I want to save the tax.


    1. Hi Parth,

      You cannot sell your home for cost to your corporation. The sales price has to be at market value. Also, you cannot claim the capital gains exemption the sale of shares of a corporation, where the only asset that the corporation holds is a house that is not used in an active business.

  8. obtained a mortgage from the bank for 25 years at 2.44% interest rate. Can I setup the loan from my corporation at a higher amortization period and at the prescribed rate? Does it make sense for me to do an interest free loan and then just include the taxable benefit in my income? Could I advance funds on this employee loan each time I have to make a mortgage payment to the bank and just increase the employee loan? Example Loan balance is $100K now, I setup a 40 year amortization schedule which I pay back to my corp but the bank also requires me to make $10K of principal payments during the year, can I advance $10K during the year on the loan.

  9. There was a tax court case Mast v Canada where taxpayer took out loan to build house with a signed repayment agreement but court ruled that loan was made in his capacity as shareholder not employee. From reading about this, i know that for loan to qualify as employee loan, it needs to be available for all employees. How can that contract be worded so realistically woud be difficult for a regular employee to ask for loan but still be legitimate if CRA audts the loan to me as the principal employee?

    1. Hi Alice,

      Consider drafting a director’s resolution to restrict the employee home loans to Management employees only. Make sure that you have an employment agreement in place for yourself as manager / president of the company.

  10. Hi Allan,
    This is a great idea. My question is: Can my corporation purchase the home and rents it to me at the market rent?

  11. Good day,

    If for instance a triplex was purchased via t a corporation and the units are then sold individually. Can there be a tax deferral if the funds are reinvested in the purchase of another property?

    If not, what type of taxes are owed, business or capital gains?


    1. Hi Jimmy, no, a deferral of tax is not possible. If you ‘flipped’ the units, then the profit will be classified as business income, subject to a corporate tax rate of 13.5% on the first $500,000 of profit and 26% thereafter. If you held the units, rented them, and then sold them after a few years, then the profit will be classified as a capital gain. The approximate corporate tax rate on capital gains is 25%.

  12. Hi Madan,
    If someone owns 1 rental property under corporation and is the sole shareholder of that corporation, can she transfer the rental property from corporation to her own personal name without triggering capital gains?

  13. Hi Allan! I have a variation on this theme that I’d like to hear your thoughts on. I want to sell my existing, mortgage-free home, and build a new home that will be my primary residence with a rental suite in it. The new home might require a small mortgage, and I was planning to set up a corporation to handle the income from the rental business. How do I arrange things so that I minimize the taxes I’ll have to pay on the rental income? Thanks!

    1. Hi David,

      You won’t save tax by having a corporation collect rents instead of you as the landlord. This is because Canadian corporations pay a high rate of tax on net rental profits of approximately 50%. In addition, it will be difficult, from a financing perspective, if your corporation takes a partial ownership interest in your primary residence.

  14. A corporation only owns 50% of the property and Mr. and Mrs. Smith own the other 50% of the property. A few years later the property is sold. Can Mr & Mrs. Smith claim 50% of the primary residence?

  15. Is it possible for a corporation (owned by me as the sole shareholder) to own a home WITH me as an individual? ie. 50/50? The business is run out of the home and I have taken salary in the past and also just dividends for the last two years.

    1. Hi Jay,
      You could technically do this. I am concerned that the CRA would view this as a taxable shareholder benefit for 1/2 of the value of the home because it is not a commercial property and cannot be divided equally into an office and residential property. Furthermore, you would lose the ability to claim the principal residence exemption on the sale of the home.

  16. My understanding is that a corporation requires 20% down payment towards a property. Where as first time home buyers only require 5%. Correct? Would I be able to loan let’s say $40,000 from my savings to my corporation tax and interest free so I can purchase a 200,000 income property. I rather have the property under a corporation name rather than my private for liability purposes.

    1. Hi Nick,

      Generally speaking, the down payment on the purchase of a primary residence for a first time home buyer with an insured mortgage is lower than normal. In terms of an income-producing property, a first time home buyer will not be eligible for a lower down payment amount. Third, corporate mortgages are more difficult to obtain and the down-payment amounts are higher.

      You can make a shareholder loan from your savings to a corporation to purchase income-producing property.

  17. Hi Allan,

    I have enough $ in my holding company to purchase a rental property outright in UK. Would there be a benefit of incorporating a separate Real Co in Canada, that would borrow from my hold co for the purchase of the property?


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