Buying your building: OpCo, HoldCo or personally?

The operating company, a second corporation, or your own name — the three routes differ on four mechanics, and not one of them is a rate. What a creditor can reach. Whether rent becomes a transaction you have to paper and defend. What the eventual sale produces, and to whom. And whose shares get measured if you ever sell the business rather than the property. Your financing, your risk and your exit decide which of the four matters most.

One thing is identical on all three. Land is not depreciable, the building is, and every dollar of capital cost allowance claimed on the way through is waiting for you in the year of the sale.

Inside the operating company: nothing to paper, nothing in between

The simplest route is one corporation. The company that runs the business owns the premises it works out of: no lease, no intercompany balance, no second year-end, no second GST/HST question. Property tax, insurance, repairs and mortgage interest are the corporation’s own costs, and CCA is claimed against active business income rather than against rent — so the restriction that caps a landlord’s claim at the property’s own performance never comes up.

What you give up is separation. A claim against the business — an unpaid supplier, an injury on the premises, a contract that went wrong, the operating line the bank calls — is a claim against the corporation that owns the building.

It also complicates the exit. A buyer of the shares buys the real estate with them — a much larger cheque than the business alone — and a buyer who wants one and not the other pushes the deal toward assets.

A second corporation: the rent becomes a real transaction

Put the premises in their own corporation and rent them to the operating company. The structure is common and it works — but the rent has to look like rent. A written lease, an amount that is reasonable for comparable space in your market, an invoice or payment schedule, and money that genuinely moves between the two bank accounts. A year-end journal entry with nothing behind it is what draws questions, and a defensible number does not save it — what gets tested first is whether the expense was incurred at all.

The mechanics are symmetrical, which is the point. Rent is generally deductible to the operating company where it was incurred to earn business income and the amount is reasonable, and the identical figure is rental income in the corporation that owns the building. The two sides have to agree, same amount and same period, or one return contradicts the other.

Two seams sit alongside it. Commercial rent is generally a taxable supply, so a registered landlord corporation charges GST/HST on it and the operating company recovers the same amount as an input tax credit — neutral across the group, but only if the tax is actually charged, remitted and claimed. And corporations that are associated generally share a single federal small-business limit rather than each getting one. A second corporation does not buy a second C$500,000.

How that rent is taxed inside the landlord corporation is worth settling before the first lease rather than at the first return. Rents are ordinarily investment income, taxed at a high corporate rate with part of it refundable when the corporation pays taxable dividends. Where the tenant is an associated corporation, rules exist that can change that characterization — and it sets the rate on every year of rent.

Standing the structure up over a building the operating company already owns is a transfer of property, not a relabelling: generally a disposition at fair market value unless a rollover election applies, with provincial land-transfer levies attaching and the lender’s consent its own conversation. Deciding this before a purchase closes costs less than deciding it after.

In your own name: the simplest title and the highest rate

Buy the building personally and rent it to your corporation: you are the landlord. The rent is ordinary income on your T1, reported on the statement of real estate rentals at your full marginal rate — no corporate rate in front of it, and none of the deferral a corporation buys. Against it you deduct mortgage interest, property tax, insurance and maintenance. Mortgage principal is not a deduction on any of the three routes. CCA is available and generally cannot create or increase a rental loss.

The sales-tax question changes shape rather than disappearing: commercial rent is generally taxable where the landlord is registered, and the small-supplier threshold that usually keeps an individual out of registering counts all of your taxable supplies, not only the rent.

What separation actually does, and where it stops

A claim against the operating company generally reaches the operating company’s assets. Move the building out, to a second corporation or into your own name, and there is a wall between it and them. Two limits apply here as they do to any holding-company structure. Personal guarantees follow you regardless of what owns what, so if you have signed for the mortgage and the operating line, the structure protects a corporation’s assets and not your house. And property moved after a claim already exists can generally be attacked and unwound. Separation is built in the quiet years or not at all.

The routes stop resembling each other at the sale

Recapture is the same on all three: the CCA claimed comes back as income in the year of sale, in full, up to every dollar claimed. What changes is who reports it and what sits beside it.

• Inside a corporation, the taxable half of the capital gain — 50% for 2026 — is investment income taxed at a high rate, partly refundable, and the non-taxable half generally lands in the capital dividend account, which can reach you tax-free by election. Held personally, half the gain is simply taxable on your return, and there is no such account.
• The lifetime capital gains exemption applies to shares, not to property, and only where the corporation’s assets are used in an active business. A building the corporation operates out of generally counts as one. A separate corporation whose business is holding property and collecting rent generally does not carry shares that qualify on their own — which is why owners move real estate out of an operating company they intend to sell, and why the exemption does not follow it into the corporation they moved it to.

A worked example: a C$5,000-a-month lease between two corporations you own

Illustrative, round numbers, December 31 year-end for both corporations, both GST/HST registered. Comparable bay space rents for C$5,000 a month, so the lease is written at C$60,000 a year plus tax, payable monthly.

The operating company pays it on the first of each month and deducts C$60,000 against active business income — income taxed federally at 9% on the first C$500,000 for an eligible CCPC in 2026, with a provincial rate on top. The GST/HST it paid comes back as an input tax credit.

The corporation that owns the building reports C$60,000 of rent and deducts C$14,000 of mortgage interest, C$9,000 of property tax, C$4,000 of insurance and C$3,000 of repairs: C$30,000 of net rent before any CCA decision. It also repaid C$18,000 of principal, which is not deductible anywhere — which is how a landlord corporation ends up tight on cash and taxable in the same twelve months.

Now the version that fails. Same two corporations, same C$60,000, but no lease, no monthly payments, and one journal entry booked in March for the year just ended. The amount may even be right. What is missing is the evidence the rent was incurred: nothing setting the figure in advance, no invoices, no money crossing between the accounts, no tax charged on a taxable supply. The deduction on the operating company’s return is tested first, and a correction there rarely stays there — the income side, the sales-tax side and the intercompany balance move with it.

What Cadence does

We set the rent off comparable space before the first payment, keep what supports it in the file, and paper the lease alongside your lawyer rather than after the fact. Both corporate returns are prepared together so the deduction on one side and the income on the other never drift, and the intercompany balance is reconciled each year-end, not at the first review letter. Where a building is being bought, we work the ownership question and the land-and-building split before closing; where one is being sold, we compute the recapture, the gain and the capital dividend account balance before you sign. The C$3,000 Compliance tier is annual returns only, and a second entity is quoted per structure; the GST/HST returns a lease creates are an add-on there and included in the year-round packages, where the monitoring through the year sits. Most owners running this reach us as investors and holding companies.