29 Oct Holding Real Estate Development Properties
There are various options to own real estate development properties, including, but not limited to:
- Joint ventures
Below is a high-level summary of each type and the various factors that can impact which entity to use.
Joint Ventures (JV)
A JV is a contractual business agreement where two or more parties agree to share their resources for the purpose of accomplishing a specific task. One member of a JV may contribute real property where the other contributes cash or expertise or a combination thereof. The income distributed from a JV can also be agreed upon amongst the parties to compensate the members of the JV equally or proportionate to their contributions. A JV is not defined in the Income Tax Act (“The Act”) and is not considered a separate legal entity. A JV can provide many benefits for both tax and legal purposes such as the potential multiplication of the small business deduction (SBD).
In general, a partnership is a relationship that exists between two or more taxpayers carrying on business in common with a view to profit. A partnership is not considered a separate legal entity and the profits/losses are flowed up to the members of the partnership and taxed in their hands. A partnership can consist of just two partners or several partners. There are several forms of partnerships and several types of members within a partnership. Certain types of partnerships may allow for liability of a partner to be limited.
The biggest difference between a partnership and a JV is that a partnership is typically used for an ongoing and continuous venture or one with a longer timeframe, whereas a JV is used for a “one-off” business venture.
Unlike a JV or partnership, a corporation is considered a separate legal entity and hence a taxpayer as per The Act. Because a corporation is a separate legal entity from its owners and managers, it files its own corporate tax return. One of the main benefits of a corporation is that the shareholders cannot be held personally responsible for the actions of the corporation (the “corporate veil”).
Corporations are generally the most common type of structure used as they provide benefits as mentioned above and involve less complexity than JVs and partnerships. There can be several types of corporations such as a ULC, public, non-resident, private, etc. Only after analyzing an individual’s fact pattern can one determine which corporation is better suited for his or her needs.
For more information on the above, including a consultation on what options may work best for you, please contact us.