Should you buy real estate in a Holding Company in BC?

It can make sense to purchase rental or vacation properties through a corporation, but often it's simpler—and less risky from a tax perspective—to own the real estate personally.

Whether it’s a vacation home near Skaha Lake, a long-term rental condo in downtown Penticton, or a vineyard-adjacent property on the Naramata Bench, the South Okanagan remains one of the most highly sought-after real estate markets in British Columbia. For years, investors and second-home buyers have debated the best way to structure their purchases. Should you buy property in your own personal name, or should you incorporate a company to hold your real estate?

While it can make sense to purchase rental or vacation properties through a corporation in highly specific scenarios, it is often simpler, more cost-effective, and less risky from a tax perspective to own the real estate personally.

This is especially true today. The regulatory and tax landscape in British Columbia has shifted dramatically in recent years. With the expansion of the BC Speculation and Vacancy Tax into the South Okanagan, the strict provincial clampdown on short-term rentals, the 2025 BC Home Flipping Tax, and the 2024 federal changes to capital gains tax, the old rules of thumb no longer apply.

Here is a comprehensive look at how these rules impact Okanagan buyers, and whether incorporating is the right move for your Penticton real estate purchase.

The BC and Okanagan Real Estate Landscape

• The BC Speculation and Vacancy Tax (SVT): As of 2025, this annual tax was officially expanded to 13 new communities, including Penticton, Summerland, Vernon, Coldstream, and Kamloops. If you own a residential property in these areas, you must declare how it is used every single year. If the property sits vacant for more than six months of the year, you could face a tax of 0.5% of its assessed value. Before deciding on an ownership structure, you must understand the current tax environment in BC. The provincial government has introduced several aggressive measures to cool housing speculation and return properties to the long-term rental market. Canadian citizens, foreign owners and satellite families can face various taxation under this legislation. A corporation is not exempt from this tax; in fact, corporate structures often face additional scrutiny regarding the residency of their underlying shareholders.

  
  

• The BC Home Flipping Tax (Effective Jan 1, 2025): If you purchase a property and sell it within 730 days (two years), BC now levies a tax of up to 20% on the profit. This rate starts at 20% for homes sold within the first 365 days and gradually declines to zero by day 730. This applies whether the property is owned personally or by a corporation, although some exemptions (like death, divorce, or major construction) do apply.

  
  

The Principal Residence Exemption: Personal vs. Corporate

One of the single greatest tax benefits of Canadian real estate is the ability to claim an unlimited principal residence exemption (PRE) on the appreciation of a property's value.

If you buy a home in Penticton, live in it, and it doubles in value over ten years, you do not pay a single dollar in capital gains tax when you sell it, provided you designate it as your principal residence.

A corporation cannot claim a principal residence exemption. A corporation is a separate legal entity from its shareholders; it files its own T2 tax returns and, legally speaking, it does not "live" anywhere. Because of the loss of this massive tax shelter, it is virtually never advantageous to have your corporation buy the primary home you intend to live in.

What about a Vacation Property?

Many buyers look to the Okanagan for a secondary vacation property—perhaps a summer home in Summerland or a lakeside retreat near Okanagan Falls. You can use a corporation to buy a secondary property, but doing so triggers strict Canada Revenue Agency (CRA) rules.

If your corporation owns a cottage and you use it personally, you must pay the corporation "fair market rent" out of your own pocket for every week you spend there. If you do not pay rent, the CRA requires you to include the equivalent rental value as a "shareholder benefit" on a T4 slip, which you must report on your personal tax return as fully taxable income.

Furthermore, you can often claim the principal residence exemption for a family cottage you use occasionally (assuming you don't use the exemption on your primary home for those overlapping years). Having your corporation own the cottage permanently destroys your ability to utilize this tax strategy.

Income Properties and BC's Short-Term Rental Rules

In the past, real estate investors frequently bought secondary properties through a corporation to run as short-term rentals (like Airbnb or VRBO). In the Okanagan, a region heavily reliant on summer tourism, this was a highly lucrative strategy.

This strategy is now severely restricted across the province. Under the Short-Term Rental Accommodations Act, short-term rentals are now strictly limited to a host's principal residence in most BC municipalities with a population over 10,000, including Penticton, Kelowna, and Summerland.

Because a corporation cannot have a "principal residence," using a corporation to buy a dedicated short-term rental property in residential areas of Penticton is generally no longer legally viable. There are limited exemptions—for instance, purpose-built strata hotels or properties located at designated mountain resorts (like Apex Mountain Resort or Big White)—but for standard residential properties, the corporate short-term rental model maybe effectively dead in most Okanagan communities.

The 2024 Capital Gains Tax Update (A Crucial Shift)

If a corporation sells a long-term rental property for a profit, how is it taxed? Information published before the summer of 2024 is entirely outdated due to sweeping changes in the Federal Budget.

Effective June 25, 2024, the federal government increased the capital gains inclusion rate. This change fundamentally altered the math of corporate real estate ownership:

• For Corporations: The capital gains inclusion rate is now a flat 66.67% (two-thirds) on all capital gains. If your corporation makes a $300,000 profit selling a Penticton fourplex, $200,000 of that profit is immediately added to the corporation's taxable income.

• For Individuals: Individuals still enjoy the old 50% inclusion rate on the first $250,000 of capital gains realized in a single calendar year. They only face the 66.67% rate on the portion of the gain that exceeds $250,000. (Note: If a property is jointly owned by a couple, they each get a $250,000 threshold, shielding up to $500,000 of profit at the lower 50% rate).

Because of this two-tiered system, holding real estate personally is now significantly more advantageous for capital gains compared to corporate ownership for the average investor.

Corporate Taxation on Passive Rental Income vs. Active Business

If you are setting up a corporation solely to buy a long-term residential rental property (since short-term rentals are out), you must consider the ongoing tax and administrative burden.

Establishing a basic real estate holding corporation in BC costs roughly $1,500 to $2,500 in legal and government fees. After that, you must pay for annual corporate tax filings, which typically run $1,500 to $3,500 per year in accounting fees.

More importantly, the CRA distinguishes between "active business income" and "passive investment income." Long-term rental income is considered passive. In BC, passive corporate income is taxed at an incredibly high upfront rate of roughly 50.67%.

While a significant portion of this tax is refundable to the corporation when it eventually pays out taxable dividends to you, the shareholder (a mechanism known as Refundable Dividend Tax on Hand, or RDTOH), the upfront cash-flow burden is massive. Most British Columbians with personal incomes under $250,000 would pay a lower marginal tax rate, and avoid steep accounting fees, by owning the rental property personally.

The Exception: Flipping Houses in the South Okanagan

There is one type of buyer who usually benefits from a corporate structure: the active house flipper or developer.

If you buy and sell properties with the intention of generating a quick profit rather than holding them for long-term rental income, the CRA treats that profit as active business income, not a capital gain. An individual flipping a property personally in BC could pay a marginal income tax rate as high as 53.5%.

By contrast, a corporation's active business income is taxed at much lower rates. The small business tax rate in BC is just 11% (combined federal and provincial) on the first $500,000 of active business income. (Just remember that the new 2025 BC Home Flipping Tax still applies to both individuals and corporations for properties sold within two years, taking an additional cut of up to 20% on top of standard income taxes).

Buying with an Existing Business Corporation

What if you don't want to start a new corporation, but you already own a successful BC business? For example, perhaps you run a thriving contracting company in West Kelowna, or a medical professional corporation in Penticton, and you have built up significant retained earnings (cash) inside the company.

In this scenario, using a corporate structure to buy an investment property becomes highly compelling.

If you wanted to buy an investment property personally, you would first have to withdraw that cash from your business as a salary or dividend. You would immediately lose up to half of it to personal income tax before you even made the down payment.

Instead, you can use your company's retained, lightly-taxed corporate profit to buy the property directly. Often, business owners will establish a separate "Holding Company" (HoldCo) and move the excess cash tax-free via inter-corporate dividends from their main "Operating Company" (OpCo). The HoldCo then buys the real estate. This ensures the valuable property is not exposed to the daily legal liabilities, creditors, or lawsuits associated with the primary business.

Mortgages, Financing, and the BC Property Transfer Tax

Financing a property through a corporation is notably more difficult than getting a personal mortgage.

Lenders rely heavily on personal credit histories (TDS and GDS ratios) to assess risk. A holding company has no human credit score, and lenders view corporate entities as higher risk due to their limited liability protection. To secure a corporate mortgage in the Okanagan, you will almost certainly be required to sign a personal guarantee, effectively putting your personal assets on the line anyway. Furthermore, interest rates and commercial lending fees for corporate mortgages tend to be noticeably higher than standard residential rates.

Additionally, buyers must factor in the BC Property Transfer Tax (PTT). In BC, you pay 1% on the first $200,000, 2% up to $2,000,000, and 3% on the remainder of the property's fair market value. If you make the mistake of buying a property personally and later decide you want to transfer the title into your corporation's name, you will generally have to pay this PTT all over again—a massive and unnecessary expense. You must decide on your ownership structure before you close the deal.

Can a Corporation Avoid BC Probate Fees?

Canada does not levy a traditional estate tax or inheritance tax, but British Columbia does charge a probate fee (Estate Administration Tax) of 1.4% on all estate assets valued over $50,000 upon your death. On a $2,000,000 Okanagan property, that equates to nearly $28,000 in probate fees.

Real estate held within a corporation may bypass probate if the shares of the corporation are dealt with via a secondary corporate will, allowable under the Wills, Estates and Succession Act (WESA). This can speed up the estate settlement process and save your heirs thousands in probate fees.

However, incorporating solely to avoid probate is usually a case of stepping over dollars to pick up dimes. The lifetime accounting fees of maintaining the corporation will likely dwarf the eventual probate savings. Furthermore, alternative legal structures—such as Alter Ego Trusts, Joint Partner Trusts, or adding adult children as joint tenants (with careful legal advice regarding beneficial ownership and bare trusts)—can often achieve the exact same probate savings without triggering the harsh corporate tax filings and fair-market rent requirements discussed above.

Final Thoughts for Okanagan Buyers

The allure of incorporating to save on taxes is a persistent real estate myth, driven by outdated advice and complex corporate structures that only benefit the ultra-wealthy or full-time developers.

For the average investor looking to buy a rental condo in Penticton or a vacation home in Summerland, personal ownership is almost always the superior route. The loss of the principal residence exemption, the punitive 2024 capital gains inclusion rates for corporations, high passive income taxes, and BC's strict short-term rental laws make the corporate route unnecessarily expensive and complex.

Corporations remain highly effective tools for active house flippers, large-scale developers, or existing local business owners with excess retained earnings. For everyone else, keep it simple, keep it personal, and always consult with a local Okanagan real estate lawyer and CPA before removing subjects on your purchase.

Always check with your accounting professional when making decisions that affect your taxation. They can advise you based on your overall financial position and how each decision will affect you over the short & long term as well as the tax implications when you sell this asset.

About the Author

Stephen Aitcheson is a mortgage broker based in Summerland, BC, serving homebuyers and homeowners throughout Penticton and the South Okanagan. Through XEVA Mortgage, Stephen helps clients with home purchases, self-employed mortgages, refinancing, construction financing and complex mortgage solutions.

We always do our best to ensure that all information provided is accurate at the time the article was published but as government regulation along with lender rule and requirements change frequently it is alway best to contact your local mortgage broker.  This will ensure you have the most upto date information and that your mortgage plan is built around your unique financial position as well as current and future goals. Contact me for to get a your free mortgage plan Stephen Aitcheson Mortgage Solutions