Property Ownership Structuring

How a commercial property is held can have significant implications for liability exposure, income tax, Land Transfer Tax planning, and estate planning. Choosing the right ownership structure before acquiring a commercial property — rather than trying to restructure after the fact — can generate meaningful long-term savings and provide important protections. At Goldstone Law Professional Corporation, we advise clients on commercial property ownership structures and implement the chosen structure efficiently and correctly. We work closely with our clients’ accountants and financial advisors to ensure that the legal structure we implement aligns with their broader tax and financial planning objectives. Legal and tax considerations are closely interrelated in real estate ownership, and the best outcomes are achieved when legal and accounting advice work in tandem.

Common Commercial Property Ownership Structures

Personal Ownership

Holding real estate personally is the simplest structure, but it exposes the owner’s personal assets to property-related liabilities and results in rental income being taxed at the owner’s personal marginal rate. For investors with growing portfolios, personal ownership often becomes tax-inefficient as income levels rise.

Holding Through a Corporation

Holding commercial real estate through a corporation is one of the most common strategies for Ontario real estate investors. A corporation provides a degree of liability protection and may allow rental income to be taxed at a lower corporate rate, with distributions to the shareholder deferred until they are needed. There are important rules governing rental income earned through a private corporation — including the distinction between active and passive income — that must be understood before implementing this structure. Importantly, a transfer of real property into a corporation is itself a taxable disposition unless specific rollover provisions under the Income Tax Act (Canada) are applied correctly.

Joint Ventures and Partnerships

Where two or more investors are acquiring commercial real estate together, they may choose to hold the property through a joint venture, a general partnership, or a limited partnership. Each structure has different implications for liability, tax reporting, governance, and the ability of individual investors to exit the arrangement. We advise on the appropriate co-ownership structure and draft joint venture agreements, partnership agreements, or co-ownership agreements that clearly define the rights and obligations of all parties.

Bare Trust Structures

A bare trust structure involves holding legal title to a property through one entity (the trustee) while beneficial ownership rests with another (the beneficiary). Bare trusts are sometimes used for confidentiality reasons or to facilitate a change in beneficial ownership without triggering a Land Transfer Tax registration. The use of bare trusts has attracted increasing regulatory scrutiny in recent years, including enhanced reporting obligations under Ontario’s Beneficial Ownership Transparency rules, and must be carefully structured and documented.

Real Estate Investment Trusts (REITs) and Mortgage Investment Corporations (MICs)

For larger investors and groups of investors, REITs and MICs provide pooled investment structures with specific tax advantages. MICs, in particular, are a common vehicle for private mortgage lenders seeking to pool capital for lending purposes while achieving favourable tax treatment. We advise on the establishment and ongoing legal compliance of MICs and other pooled real estate investment vehicles.

Land Transfer Tax Planning

Land Transfer Tax (LTT) is payable each time real property is transferred in Ontario. Structuring a property acquisition correctly — for example, using a bare trust or acquiring shares of the property-holding corporation rather than the property itself — can, in some circumstances, result in LTT savings. However, LTT planning requires careful analysis, as the Ontario government has implemented anti-avoidance rules targeting certain arrangements. We advise clients on lawful LTT planning strategies and ensure that any structure we implement is fully compliant.

Contact Goldstone Law to discuss the optimal ownership structure for your commercial real estate investment. We work with your accounting team to implement a structure that achieves your legal, tax, and business objectives.