Holding Company

Holding Company

Also known as a HOLDCO, a holding company’s main purpose is to hold assets. Different than an operating company, a holding company doesn’t produce goods or services. Holding companies can own assets such as real estate, mutual funds, stocks, or shares in operating companies. Holding companies can provide further liability protection for your personal assets, as the assets are held separately from your operating company. They can also provide tax sheltering and tax deferral to optimize your savings.

What are the benefits?

1. Asset and creditor protection✨

• To increase the protection of your personal assets, as the assets are held separately from your operating company.

2. Tax saving and tax deferral✨

• Profits earned in an active operating company are subject to corporate taxes, which are lower than individual tax rates.

• Tax rules allow you to flow dividends between Canadian corporations tax free.

3.Income splitting✨

• Letting family members have shares in the holding company, allows them to collect dividends at a lower personal tax rate (than yourself).

4.Estate planning✨

• Providing an easier transition of assets from one generation to the next.

• In an estate freeze, the company’s share value is frozen for the original shareholders, and all future growth is passed along to the next generation.

Disadvantages to purchasing real estate under a Holding Company:

1. Rate premium✨

• Many mortgage lenders include a rate premium when the property is owned under a holding company.

2. Incorporating and accounting costs✨

• There is a one time fee to open the holding company, which can be done online or through a lawyer, as well as ongoing accounting costs.

3. Less prime lending available✨

• There is very minimal Prime A lending available for purchasing under a holding company. An alternative mortgage lending solution could be required to shelter tax.

With the right planning, a holding company can be beneficial for growing and protecting your wealth. To learn more about whether a holding company could be right for you, let’s chat! ✨