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Tuesday, December 29, 2009

Holding the Property

Even if you have already decided how to hold the property, unless you were sure you were going to buy a property you probably haven’t set up the mechanism as of the moment the offer is accepted.

Of course, if you are holding the property in your own name there is nothing to set up. However, if you decided to set up an LLC or LLP it needs to be done prior to closing to avoid a second transaction.

In our case we initially used an LLC, but later decided to move to an LLP due to fears of how the Canadian and US Tax treatment lines up (or not). Rumor has it that the CRA (Canada) may see an LLC as a Corporation while the IRS (US) treats an LLC as a transparent entity passes the income to the individuals from a tax perspective. That may result in double taxation. An LLP is said to provide similar liability protection to an LLC (in the US), and may line up better with personal tax treatment in Canada.

OK, whichever you decide...how is it set up? Do it yourself or use a service to have it set up for you? We used a service for the LLC, then later set up the LLP ourselves to save cost and because the service was not the highlight of our experience.

Even when you determine all the steps and set up the entity yourself, having a local (to the target city) contact who can assist with filing and potentially provide Notary services at a low cost is beneficial.

If you are using an LLC or LLP to hold the property, you may want to set up a bank account for that entity to keep "business" and "personal" entirely separate so as to protect against "piercing the veil" and losing liability protection.

The entity will need an EIN (tax number) for use in setting up a bank account, and later for tax purposes.

We ultimately aligned with a Management Company to manage the property for rentals, and set up the account with the Management Company under the LLP’s name, and linked it to the LLP’s bank account.


  1. hi im in vancouver bc and a Canadian resident. Do I set up the LLP as Canadian or US company?
    Im planning to buy in Atlanta GA.

  2. Hi there. We set up our LLPs in Arizona via the Arizona Secretary of State. Then, from a US perspective, it's all a simple and known model. The IRS would consider the LLP as "domestic" with foreign partners...a model that is clean and simple.