Owning Rental Property in a Corporation vs Personally in Ontario (2026): A Side-by-Side Comparison

Reviewed by Bader A. Chowdry, CPA, CA, LPA on October 22, 2026

Many Ontario landlords ask the same question once they own a second or third unit: should the rentals sit in a corporation, or stay in my own name? The short answer is that a corporation rarely lowers the total tax on rental income. Ontario rental income earned in a corporation is usually taxed at a high corporate rate up front, and much of that tax only comes back when the corporation pays dividends. The real reasons to incorporate tend to be about liability, estate planning, reinvestment and how the rentals sit beside an operating business. The comparison below lays out the trade-offs with figures checked against CRA and Ontario government sources.

How is rental income taxed when I own the property personally?

When you own a rental in your own name, the net rental income (rent less mortgage interest, property tax, insurance, repairs, utilities you pay and capital cost allowance) is added to your other income on your personal return and taxed at your marginal rate. There is no separate “rental tax rate”.

Personal ownership has some clear strengths:

• Simplicity. One T776 statement on your T1 return, no corporate return, no separate bookkeeping entity.
• Loss use. If a property runs at a loss in its early years (often because of interest costs), that loss can reduce your other income, such as employment income. Inside a corporation, the loss stays in the corporation.
• Financing. Residential lenders are generally set up to lend to individuals. Corporate borrowers often face commercial lending terms and are usually asked to sign personally anyway.

The main drawback is that the income is taxed in the year it is earned at your personal rate. If you are already in a high bracket from employment or business income, each extra dollar of rent is taxed at that high rate.

How is rental income taxed inside an Ontario corporation?

This is where many landlords are surprised. The low small business rate that operating companies pay applies only to active business income. A corporation whose principal purpose is earning rent from real property is generally carrying on a specified investment business under section 125 of the Income Tax Act, and that income does not qualify for the small business deduction unless the corporation employs more than five full-time employees in the business. The CRA has said that whether a business is a specified investment business is a question of fact, and that providing significant services beyond basic rental can change the answer. For most landlords holding a handful of units, though, the income is investment income.

For a Canadian-controlled private corporation, investment income is taxed at:

• Federal: 28% (the 38% basic rate less the 10% federal abatement) plus the 10 2/3% additional refundable tax, about 38.67% in total.
• Ontario: the general rate of 11.5%. Ontario’s reduced small business rate (cut from 3.2% to 2.2% effective July 1, 2026) does not apply, because rental income is not active business income.

That puts the up-front combined rate at about 50.17%. The design is deliberate: the federal government uses the additional refundable tax to remove most of the advantage of earning investment income in a corporation instead of personally.

What happens to the refundable tax when the corporation pays dividends?

Part of the corporate tax is not permanent. Under the CRA’s dividend refund rules, 30 2/3% of the corporation’s aggregate investment income is added to its non-eligible refundable dividend tax on hand (NERDTOH) account. When the corporation pays taxable non-eligible dividends, it gets back the lesser of 38 1/3% of those dividends and its NERDTOH balance.

The idea is called integration: by the time the money reaches you as a dividend and you pay personal tax on it, the total corporate and personal tax should be roughly what you would have paid owning the property personally. In practice, integration is not perfect, and the result depends on your personal bracket and the dividend tax credit rates in the year the dividend is paid.

Worked example: $60,000 of net rental income in a corporation

Assume an Ontario holding corporation (a CCPC) earns $60,000 of net rental income in its 2026 taxation year and has no other income.

Step	Amount
Net rental income	$60,000
Federal tax at 38 2/3% (28% + 10 2/3%)	$23,200
Ontario tax at 11.5%	$6,900
Total corporate tax up front	$30,100
Added to NERDTOH (30 2/3% of $60,000)	$18,400
Non-eligible dividend paid to the shareholder	$48,000
Dividend refund (lesser of 38 1/3% × $48,000 and $18,400)	$18,400
Net corporate tax after the refund	$11,700

The corporation keeps $29,900 after tax ($60,000 less $30,100), receives the $18,400 refund, and so has enough cash to pay the $48,000 dividend. The shareholder then pays personal tax on the $48,000 non-eligible dividend at their own rate. If the corporation does not pay dividends, the full $30,100 stays paid and the cash left to reinvest is only $29,900. That is why holding rental income in a corporation to “defer” tax usually does not work the way it does for active business income.

Corporation vs personal ownership: side-by-side comparison

Issue	Owned personally	Owned in a corporation
Tax on net rental income	Your marginal personal rate, in the year earned	About 50.17% up front; 30 2/3% of income refundable when non-eligible dividends are paid
Small business deduction	Not applicable	Generally not available (specified investment business) unless more than five full-time employees
Rental losses	Can reduce your other income	Stay in the corporation; carried forward against its future income
Capital gain on sale	50% of the gain taxed at your marginal rate	50% taxable at investment income rates (with refundable portion); the non-taxable 50% is added to the capital dividend account
Getting money out	Already yours after personal tax	Dividends (taxed personally), capital dividends from the capital dividend account (not taxable to the shareholder, by election), or shareholder loan repayments
Effect on an associated operating company	None	Rental income counts toward adjusted aggregate investment income, which can shrink the federal small business limit
Land transfer tax on moving an existing property in	Not applicable	Payable on fair market value if shares are issued
Financing	Residential lending, individual approval	Often commercial terms; personal covenants usually still required
Annual compliance	T776 on your T1 return	Corporate T2 return, financial statements, Ontario annual return, minute book
On death	Deemed disposition at fair market value; property usually passes through the estate, and Estate Administration Tax may apply	Shares are deemed disposed of; property stays in the corporation; planning needed to avoid double tax

Can rental income in a holding company affect my operating company’s tax rate?

Yes, and this is the issue most often missed. If your rental corporation is associated with your operating company, the rental income counts toward the group’s adjusted aggregate investment income. Under the CRA’s small business deduction rules, the federal $500,000 business limit is reduced by $5 for every $1 of that income above $50,000, and it reaches nil at $150,000.

Using the example above: $60,000 of rental income is $10,000 over the threshold, which reduces the operating company’s federal business limit by $50,000, to $450,000, in the following year. Ontario’s Ministry of Finance states that Ontario does not parallel this federal passive income phase-out, so the Ontario business limit stays at $500,000. If your operating company earns close to the limit, this interaction can matter more than the rental tax itself.

What does it cost to move an existing rental into a corporation?

Two separate taxes apply, and only one of them can be deferred.

• Income tax. Transferring property to a corporation is a disposition at fair market value. A joint election under section 85 of the Income Tax Act (Form T2057) generally lets you transfer the property at an agreed amount and defer the gain and recapture, provided you receive shares as part of the consideration.
• Land transfer tax. Ontario’s Land Transfer Tax Act deems the value of consideration to be the property’s fair market value when a corporation issues shares for land. There is no section 85 equivalent for land transfer tax.

Using Ontario’s published rates (0.5% up to $55,000; 1.0% to $250,000; 1.5% to $400,000; 2.0% above $400,000), a rental condo with a fair market value of $600,000 would attract Ontario land transfer tax of $8,475 ($600,000 × 2% less $3,525). A property in Toronto would also face the City of Toronto’s municipal land transfer tax. Lender consent is usually needed too, since most mortgages are not transferable to a new owner without approval.

For a deeper look at the rollover mechanics, see our guide on how to set up a holding company in Ontario.

When does holding rentals in a corporation make sense?

Incorporation is more likely to be worth discussing when:

• You are buying the next property, so there is no existing property to transfer and no extra land transfer tax from a move.
• An operating company already has surplus after-tax cash that would otherwise be paid out as dividends just to buy property personally.
• Several family members are investing together and you want a single entity with a shareholders’ agreement.
• You want to separate the rental activity for liability or estate planning reasons, and you accept the compliance work that comes with it.
• The business provides substantial services or has more than five full-time employees, which may change the specified investment business analysis. Our article on when rental income becomes active business income explains the test.

It is usually harder to justify when you hold one or two residential units, the properties run at a loss, or you would need to move existing properties with significant land transfer tax.

Frequently asked questions

Does a corporation pay less tax on rental income than I would personally?

Usually not. A CCPC pays about 50.17% on Ontario rental income up front, and 30 2/3% of the income is refundable only when the corporation pays non-eligible dividends. The system is designed so total tax is broadly similar either way.

Can my rental corporation claim the small business deduction?

Generally no. Rental income from real property is income from a specified investment business, which does not qualify unless the corporation employs more than five full-time employees in that business. Whether that test is met is a question of fact.

Do I pay land transfer tax if I move my rental into my own corporation?

Yes, in most cases. When a corporation issues shares for land, Ontario deems the taxable value to be the property’s fair market value. A section 85 rollover defers income tax only.

Can rental income in my holding company reduce my operating company’s small business limit?

Yes, at the federal level. If the corporations are associated, adjusted aggregate investment income above $50,000 reduces the federal $500,000 business limit by $5 per $1, to nil at $150,000. Ontario does not parallel this reduction.

How is a capital gain on a rental taxed inside a corporation?

Half the gain is taxable at investment income rates, with the refundable portion added to NERDTOH. The other half is added to the capital dividend account and can be paid out by election as a capital dividend that is not taxable to the shareholder.

Talk it through before you buy or transfer

The right structure depends on your other income, whether you own an operating company, your financing, and your estate plans. Book a 30-minute planning call with Bader A. Chowdry, CPA, CA, LPA to review your rental holdings before your next purchase or year-end. For a wider view of rental tax issues, see our guide for Ontario real estate investors.

This article is general information only and is not tax, legal or financial advice. Tax outcomes depend on your specific facts, so confirm your situation with a qualified advisor before acting. Figures and rules are current as of the review date, October 22, 2026, and may change.