The rate question: active business or specified investment business
Ontario taxes a corporation's active business income at about 12.2% on the first $500,000. But rent earned by a corporation is normally a specified investment business: no small business deduction, tax around 50% up front, with part refundable only as dividends are paid out. The exceptions are narrow. A corporation earning rent stays active if it employs more than five full-time employees throughout the year, or if what it really sells is accommodation plus services, the way a hotel does.
Short-term rentals sit exactly on that line. Nightly turnovers, linen, cleaning, guest messaging and dynamic pricing look more like operations than passive rent, and hotel-style businesses have long been treated as active. A host with one condo and a cleaner on call, though, is a hard case to win. We give you an honest read on your facts before you pay for a structure that quietly assumes the good answer.
Moving a property in is a purchase, not a paperwork step
Transferring a condo you already own into a corporation is a disposition at fair market value. Income tax on the accrued gain can often be deferred with a section 85 rollover, but Ontario land transfer tax applies again on the full value, Toronto layers its municipal land transfer tax on top, and your lender must consent or the mortgage must be rewritten in the corporation's name. If the unit has been substantially a short-term rental, the transfer may not qualify as an exempt used-residential sale either, putting 13% HST on the table.
The practical rule: incorporation is cheapest at purchase time. Buying the next unit inside the corporation costs one set of closing costs; moving the last unit in costs two.
What the corporation is actually for
Where it fits, a corporation earns its keep on more than rate:
- Liability containment. Guest injury claims and bylaw disputes stop at the corporation's assets, with proper insurance still doing the front-line work.
- Portfolio separation. Lenders, partners and an eventual buyer see one clean entity per strategy instead of everything pooled in your name.
- Timing. Profit can be retained at corporate rates where they apply, smoothed across seasons and paid out in years that suit you.
- A banker-ready face. Walla Assaf spent years in banking and corporate finance before founding Tauro, and that shapes how we build share structures and statements a commercial lender can underwrite quickly.
One warning for owners who already have a company: do not park STR condos inside an existing operating business. Rental real estate is a non-active asset that can spoil the share purity an eventual sale needs to claim the $1.25 million lifetime capital gains exemption. If a corporation is right, it is usually a separate one, kept to a single strategy.
When staying personal wins
Plenty of hosts should not incorporate, and we say so. A home-share cannot move into a corporation without giving up the principal residence exemption, which a corporation can never claim. Early losses, common while furnishing a unit and building occupancy, offset your employment income personally but sit trapped inside a corporation. The $30,000 HST registration threshold applies either way, so incorporation solves nothing there. And a T2, corporate records and separate accounts are permanent overhead that a single suite's margin may never repay.
| Question | Held personally | Held in a corporation |
|---|---|---|
| Tax on STR profit | Your marginal rate, up to 53.5% | About 12.2% if active; roughly 50%, partly refundable, if not |
| Start-up losses | Offset your other income | Locked inside the corporation |
| Principal residence exemption | Available on your own home | Never |
| Getting the property in | Already yours | FMV disposition, land transfer tax again, possible HST |
| Ongoing admin | T776 or T2125 on your T1 | T2, minute book, separate books and accounts |
How we settle it with you
Our Incorporation engagement starts with the math, not the filing: specified-investment-business risk on your actual operations, the cost of moving property in versus buying in-corp next time, and what the structure changes for financing the next unit. A $150 one-hour consult is often enough to settle the question, and Tax Planning & Advisory carries the structure forward once it exists. If the right answer is stay personal for now, that is the advice you get, in writing, from our Mississauga office.
