Ottawa Housing for Sophisticated Investors

Sophisticated investors in Canada will consider purchasing through a trust if they want to take advantage of income splitting.

Specifically, discretionary trusts are set up with you, the investor, as the trustee of this separate legal entity that holds a property for the beneficiaries -- who can be anyone, but are usually a spouse or children. As a trustee, you have the discretion to say which beneficiaries the trust will pay income or capital to.

You can take advantage of the lower marginal tax rate of a spouse or child, who then uses the money from the trust, such as for tuition or hockey lessons.

Beneficiaries must pay a rate of interest annually to the trustee by Jan. 30 of the following year, or the income goes back to trustees at the fully taxable rate.

Setting up a trust costs about $2,000, and tax benefits are generally $300 to $400 each year. The trust ownership structure is more popular among small real estate investors than corporate structures.

There's no real tax advantage to corporate ownership over personal ownership, unless you have an active business.

If you're purchasing many properties, or a large building with many tenants, a corporation will provide an extra layer of protection against your personal assets in case you are sued.