Can I lease my property to my LLC in Canada?

Does the question “Can I lease my property to my LLC in Canada?” cross your mind, especially when your company is looking out for assets and property to use? While it is completely legal to do so, there are other practical considerations that you and your corporation should first take note of.

Can I lease my property to my LLC in Canada?

Yes, you can lease your properties or your assets to your limited liability company (LLC) in Canada. These assets or properties that you lease to your LLC may include land, office or building space, machinery, vehicles, office equipment, etc.

An LLC is a business structure that has many advantages as it offers liability and tax benefits. However, for the purposes of taxation and other legal matters, “LLCs” in Canada are considered as “corporations”.

This means that although LLCs exist in other countries, an LLC is not recognized under Canadian laws. While there are differences between an LLC and a corporation in other countries, it does not exist in Canada since they are considered the same.  

To better understand these tax and liability advantages, we should first know the different business structures recognized in Canada and how these advantages apply to each.

What is an LLC?

An LLC is one of the business structures created by law when two or more “members” (or “partners”) create an entity, where one of them becomes the LLC’s “manager”. The manager is responsible for the LLC’s day-to-day operations (e.g., financial monitoring, management of employees, etc.).

It is preferred by most because it combines the characteristics of a corporation and a general partnership.

It operates like a partnership, where an LLC protects its owners (or its partners) from personal liability for the company’s debts or liabilities. As such, the personal properties of its partners are protected from satisfying the company’s debts and other liabilities.

While it may also be taxed like a corporation, the profits and losses of the corporation may be reported on the personal tax returns of its members/partners.

What is the closest thing to an LLC in Canada?

Since an LLC is not a recognized business structure in Canada, the closest thing to an LLC under Canadian laws is a corporation.

Canadian business structures

In Canada, there are only three business structures that individuals can use for the legal recognition of their businesses or organizations:

• Sole Proprietorship: when a business is owned and operated by one person.
• Partnership: when two or more people (the “partners”) pool their resources to profit from it, and where its income (and losses) is shared among all partners.
• Corporation: when an entity is registered or incorporated under a specific law for the purpose of conducting business or for-profit operations.

There may be variations to these structures, depending on each case. These business structures are also governed by different Canadian laws.

Canadian laws on corporations

Different Canadian laws govern the activities and the life cycle of a corporation. Some of these laws include:

• Incorporation and governance: Canada Business Corporations Act (CBCA) and other provincial laws if it’s incorporated provincially.
• Taxation: Income Tax Act and other Regulations of the Canada Revenue Agency.
• Insolvency or bankruptcy: Bankruptcy and Insolvency Act (BIA), Companies’ Creditors Arrangement Act (CCAA), or the CBCA.

What are the benefits of leasing my property to my corporation or LLC?

Leasing your properties to your corporation has its advantages. As discussed above, LLCs are considered corporations in Canada, so we’ll go over these advantages within the context of a corporation.

Types of leases

The benefits from leasing your assets or properties to your corporation will depend on the type of lease used between you and the corporation.

Here are some of the popular types of leases in Canada:

• Ground lease: where vacant land is leased to a tenant or lessee who develops that land (e.g., does some groundwork, constructs a building etc.). After its development, the tenant/lessee becomes a lessor who will sublease the property to another tenant/lessee.
• Commercial lease: where a building or office space is leased by a business or company to run its operations. Some examples are to put up a business’s office, retail outlet, or for industrial operations.
• Residential lease: where a building space or vacant land is leased strictly for residential purposes.

While ground lease and commercial lease are usually long-term arrangements, residential leases are usually shorter in duration.

Watch this video to know more about the different types of commercial lease:

To know more about commercial leases and leasing your property to an LLC, consult with a property leasing lawyer in your area. If you’re in Québec, talk to a Lexpert-Ranked best property leasing lawyer in Montréal. Incidentally, Québec’s Civil Code also applies to lease contracts.

Canadian laws on leases

Knowing the Canadian laws on leases will help you decide on what lease arrangement to use when leasing your property to your corporation. These laws will govern the relationship between you (as a landlord or lessor) and your corporation (as the tenant or lessee).

Since a lease is forged by a contract, the common law on contracts will apply to all types of leases in Canada. The contract will primarily govern the rights and obligations of both parties. It will also subject a party to liabilities, such as damages, if the contract has been violated.

Some provincial laws may also apply to certain types of leases:

• Commercial lease: commercial tenancy statutes in some provinces (e.g., Ontario’s Commercial Tenancies Act).
• Residential lease: residential tenancy laws in some provinces (e.g., British Columbia’s Residential Tenancy Act).

Additional income

One of the biggest and most important advantages in leasing your property to your corporation is additional income.

Aside from the share of the corporation’s income, you will also have additional income from the activities of the same corporation because of your lease contract with it.

This is an effective way to use your idle property and earn income from it.

Fewer conflicts

Since your property is leased to a corporation which you also have an interest in, there may be fewer conflicts on the terms and conditions of the lease contract.

However, be careful as conflicts of interest may arise out of it.

Less management costs

Typically, the corporation or the business leasing your property will be responsible for maintenance and management costs of the property. This may include repairs, insurance, and other administrative costs.

This ensures that you’re getting the net income of the lease. However, this will still depend on your lease contract.

Tax advantages

By leasing your assets or properties to your corporation, you can avoid being taxed twice on the same set of “income”.

For example, you will be taxed twice when your corporation sells appreciable assets, and you’ll take the money out of the company. However, when it’s only leased to your company, you will only be taxed once.

It’s important to consult with a property leasing lawyer so that your tax avoidance practices, in relation to leasing, will not result in tax evasion.

Fewer properties to be seized

Since you legally own the property being leased, such property will not be included when the corporation’s properties are seized by its creditors. This makes your property safe from being used to satisfy the corporation’s debts.

If you have more questions on leasing your property to your LLC, contact any of the best property leasing lawyers in Canada as ranked by Lexpert.