Table of Contents - Accounting Apps, Corporations and So Much More with Cherry Chan
George El Masri [00:00:00] Ladies and gentlemen, thank you for joining us, as always, I appreciate you tuning in. I hope you're enjoying the contents. I have a great episode for you today. I interviewed Cherry Chan, an accountant that specializes on working with real estate investors and not just real estate investors, but small business owners, realtors, people, for the most part, who have investment properties. And we covered a bunch of different topics. We talked about her favorite apps. So things that make it easier for you to do your bookkeeping, you're paying contractors, just all sorts of different stuff that are related to your taxes and your bookkeeping. So I think you're really going to enjoy that part. And we also talked about corporations. So why buy and hold corporations versus flipping corporations? Why you should separate the two in addition to realtor and corporations. So I'm a realtor myself. I was curious and also was a little bit selfish, but just wanted to know because this is something that's newly coming into effect. So I hope you'll enjoy the episode. If you do like it. Leave us a review if you're listening to it on our podcast application or platform. If you're watching on YouTube, give us a like subscribe and share it with your friends and family. And if you want to find out some more information on real estate investing content, there's plenty of stuff on well off. That's the way forward slash report. There's all sorts of stuff for you to check out. You can just download it for free there. So have a look well off Nazia for its last report. Enjoy the episode. Welcome to The Life podcast, where the goal is to motivate, inspire and share success principles. I am speaking with Terry Chen today, who is an accountant, began her career in twenty three and she is currently with Mr Hamilton himself, Erwin Zito. She is part of the Rockstar family, so she specializes in working with real estate investors, developers, property managers, contractors, realtors, mortgage agents and agents, Sari and small business owners, most of which invest in real estate. So, Terry, thank you and welcome to the show.
Cherry Chan [00:02:02] Thank you so much for having me. It's a pleasure to be on the show.
George El Masri [00:02:06] Yeah, same here. The pleasure's mine. So what I normally like to do, Terry, before I get started, I like to ask you about your childhood. So where you grew up and just maybe something you remember from your childhood.
Cherry Chan [00:02:19] Wow. That's a very deep question to begin. Oh, I think yeah. I guess it's a lighter question than talking about accounting. So, yeah, I was born and raised in Hong Kong for the first seventeen years of my life. I spent my childhood there. So and then ever since then I moved to Canada, I went to high school here and then I went to university here. Oh, cool. Yeah.
George El Masri [00:02:46] Is there anything you remember about your childhood, anything that stands out to you?
Cherry Chan [00:02:50] Yeah. So we lived in government subsidized housing when or at least a portion actually the entire portion of my life lived in the first seventeen years I lived in government subsidized housing. It's a small place that I remember that we share. It was maybe five hundred square feet and there's two bedroom, one bathroom, one kitchen, small living room as well. I share a room with my brother, a bunk bed, and then my parents have their own room. And what I remember most about that phase of my life is that obviously I was a kid. So everything it's like I didn't know any different difference. The best memory is that people selling they would they would sell all these food. They were so just like Canada, like all real estate investor, their hustle, they hustle a lot in Hong Kong. So some people would make a bucket of we call it the tofu pudding. It's a dessert. They would muck up, make a bucket of those, put it on a cart and then push it over to every single building and sell. Wow. And it's like a five dollar, which is a dollar Canadian, roughly a dollar Canadian. You gave you give the vendor your apple and they will give you the desert in it. And it's it's great memory because it smells nice and it's hot and it's warm. Now, you don't see that very often here. You don't ever see it selling anything on the street here. But back in the days, it was a really good memory.
George El Masri [00:04:28] Oh, cool. That's a that's a cool memory. That reminds me. So my family's Lebanese and I remember I was born in Canada, but when I would go to Lebanon as a kid, they would have something similar. But they would have like this bread that they would somebody with a cart would sell bread in the neighborhoods and everybody would run down and grab what they could from there. So, yeah, those are those are nice memories.
Cherry Chan [00:04:49] Yeah, absolutely. I love I love, love those food. I still like it and my kids still have it. But you nowadays you have to go to a store and drive there. It's not the same.
George El Masri [00:05:01] Yeah, yeah, exactly, that's OK. Yeah, so obviously you are very well known as a real estate investors specific accountant. You work with a lot of investors. Yeah, I know you you've got all sorts of systems in place. And part of your services include bookkeeping account, where software is set up like quick books, financial statement, preparation, tax returns, tax planning and corporate organization. So you do quite a bit to help people. I wanted to just start off by kind of asking you about some of the apps that you use now to get all sorted out so that are that are friendly with for real estate investors.
Cherry Chan [00:05:45] Yeah, that's that's great. So I use I actually have six, seven I lost track six, seven operations myself. And then of course I have to manage my husband's books as well. So then that means I have like six, seven and then plus also charity that I manage as well. And so we have so many different sets of books I recognize early on, unless I get super organized all I get help from all these apps, I'm not going to be able to stay on top of having those receipts stored properly for me. So one thing that I did early on is to I learn it's to learn all these cloud based apps so your phone can do a lot for you. One of the number one softwares that I use is Colquitt Books online. A lot of you are using it already. It is an app that you can track your income and expenses based on your bank record. So before we even go into the ad, the kind of apps that we need to use as, say, investors, we always educate our clients who have a separate bank account for each property. If you own all the properties in your personal name and then by linking your bank transaction to the quick books online yourself, a lot of the transactions are already imported by Quickparts online to over imported from your bank directly to the Quickparts online document. And all you need to do as they is to select, hey, the deposit is rental income. I click rental income and that is being recorded now. The function doesn't stop there so quick. Both online also has a full app that you can just take a picture of those Home Depot receipt that you you incur. And by taking the picture, you can also record the expense. And if you pay it directly from the from the bank account that you designate a bank account for this particular property, then they would match automatically against each other. And when you look at your bookkeeping, all you need to do is to click bash and then the transaction is recorded. So that's the number one app that I would recommend for small scale. And now on top of that, I also use an app called Pluto.
George El Masri [00:08:09] So Cherry, sorry to interrupt, but I just wanted to ask you about quick books. Sure. First of all, how many properties would you suggest someone should have before they start using cookbooks, books, as opposed to just having like an Excel spreadsheet if, for example, they have just one property?
Cherry Chan [00:08:25] So for anyone that has a corporation that owns properties through corporation, I would recommend them to have a quick look. Now, if you only own properties in your personal name, I've seen clients having a tracking everything all the way up to like five properties, all in Excel workbook. But by the time you get to two or three, you will feel that you are not able to keep track of it. And that is the time that I would recommend you starting looking at cookbooks or other other way to keep track of your income and expenses.
George El Masri [00:08:58] And my second question was, so if you have a corporation and you have a corporate bank account associated, if you buy a second property under that same corporation, would you just suggest opening another checking account under the same with the same bank?
Cherry Chan [00:09:13] Well, so yes or no and no? Sorry. Now for the company, bank account is typically a little bit more expensive. And if you already have the books online set up and they are linked to each other is relatively simple just to sort it in the quick books on level instead of at the bank level when you have multiple bank accounts for multiple properties. The reason why we do that is for easy tracking. But if you already have the quick online to track it for you, you don't really need to have multiple bank accounts. Now, having said that, some of you would be doing all your real estate investment with a joint venture partner. So if you have a joint venture partner on a particular deal and the ownership, your percentage of ownership is recorded in the corporation, then I typically recommend you to have a separate bank account. Just for that particular property with your joint venture partner, right?
George El Masri [00:10:05] OK, fair enough. Now we can we can go on to Pluto.
Cherry Chan [00:10:09] Yes. So Pluto, the way you spell Pluto is PLL or Teil, and it's an Peyman app. And it's also, I guess, a rent collection app as well. I use it in multiple businesses every month. I think they charge twenty five dollars. That includes hand transaction. What it does for me is that from a tenant perspective, I would be able to preset the withdrawal amount. So if George, I rent a property to you for two thousand dollars and I can send a request to you to withdraw money on the first of every month, and then you have to accept it and enter your bank information, Pluto is going to your bank and grab the money for me and then deposit it to my bank account. Now it can be recurring, so I only need to set up once. And then obviously, if you leave, then I would have to cancel it.
George El Masri [00:11:08] Yeah, so the tenant on the other end, they have to just confirm because I know, like certain applications they do, they'll do like a deposit into the tenants bank account and that the tenant has to report back to you and tell you how much money was deposited. You know, if that's the same case in Pluto,
Cherry Chan [00:11:24] no, that's not the same case in Pluto. That would be the case for me. I have to when I first register the account, that would be the case for me, but not for the tenancy.
George El Masri [00:11:34] Yeah. So that's that's actually good, because even if you do rent increases, they have to always approve the changes. So it's it might be a little bit beneficial to skip some steps of Pluto that way.
Cherry Chan [00:11:44] Yeah, regardless. I mean, when I do rent increase, I would. Yes, exactly. The tenant has to reassess it if I can make any changes. It's not like I can just do it without their approval.
George El Masri [00:11:56] Yes, of course. Of course.
Cherry Chan [00:11:58] And with this app, the downside is that if the first like for example, July 1st, it would not it would always be that holiday. I would not be able to get the rent on July 1st. It will take money out from the bank account on July 2nd, and then the money would then be deposited probably three to five days later.
George El Masri [00:12:18] Yes, exactly. Yeah. And that's pretty standard for most of the apps that that do pre authorized debit. OK, and another cool thing, I believe I've heard you say I haven't used Pluto yet, but I believe I will be. But they can also pull receipts for you from from your different bank accounts. And like let's say you have a Rogers account for your cell phone. It can kind of draw that out and invoice it for you, right? No, sorry. That's that's not Pluto. That's Hubach.
Cherry Chan [00:12:47] That's helped, right? Yes. OK, what Pluto does is that it will pull information from comic books online as well. Right. So the quicksort nine import transactions that are supposed to be like, for example, if you owe someone money, so you hire a contractor and this person asks you for ten thousand dollars and in Quickparts online, you recorded that I there's ten thousand dollars that I have to pay and then sold Pluto. You go into Pluto, it could pull all these information how your vendors, your payable list from Quickparts online and it would import it and you can select which one you pay and then by doing it and you approve it by doing so, the money will get withdrawn from your bank account. And then to get the positive to the other side is kind of like each horsburgh, except that you can transfer a large amount.
George El Masri [00:13:44] Oh, cool. OK, so so just to kind of recap, so let's say you hire, like you said, a contractor, they sent you an invoice, you upload do you upload that invoice into cookbook's and then it transfers over to Pluto or do you just manually put the amount
Cherry Chan [00:13:59] you can do both.
George El Masri [00:14:00] OK, yeah. So that invoice then gets transferred to Pluto and through Pluto, you're able to pay that large amount directly to the contractor.
Cherry Chan [00:14:09] Exactly. OK, cool. Yeah, it gets really handy. It's kind of like your online checkbook that way. Mm hmm.
George El Masri [00:14:17] OK, perfect. And is there a limit like you can? Are you aware if there because I don't know if you can send one hundred thousand dollars to someone.
Cherry Chan [00:14:25] I've sent one hundred thousand.
George El Masri [00:14:27] Oh yeah.
Cherry Chan [00:14:27] OK. But I've never it's Pluto also has a function to pay Ciau A with ciau a payment. It has a limit. The maximum you can pay for per transaction is ten thousand. Right.
George El Masri [00:14:44] Yeah. Perfect. OK, and then so we touched on just a little bit. So Updyke is just kind of a receipt management you snapshots on your phone. I was just curious, do you still use Hobeika? Did you ever consider getting one of those scanners that you just put your receipts in and just scans them all?
Cherry Chan [00:15:01] Yeah, so, so dark is a software that, like you said, it will just go. It's kind of like your personalized man. That's how I do how I describe it. It would just go to your utilities companies online poll file and grabbed the receipt for you. It goes to Roger's account, grabs the receipts for you. It sometimes if the municipality, the city that you are, your investment property is located and also work with Canada Post, I can also have that would also go to post to grab all the document, the property tax for you. So it's pretty cool that I have everything all in one place. Now, the reason why I like I also personally, I also have a scanner in the background and the reason why I don't just use a scanner is because no one has an app. So I can just use that to take picture, click on. I can do the same thing. But so when the hubcap pulls the document from the company, it can also if you set it up right, you can also it can also post the entry over into cookbook's online.
George El Masri [00:16:09] Right. So they all kind of work together.
Cherry Chan [00:16:11] Yeah. So it can do an automatic transaction post it. So doing essentially it does part of the bookkeeping for you. Yes. And then the next best thing for hot dog to have hopped out is that it also you can also choose to put a copy in an online drive that you have. So for example, if you downloaded the document from Rogers and you want to keep a copy in your Google Drive online Google Drive, you can do that via up. So push it to your online drive and push it to quick both online.
George El Masri [00:16:44] And can you set it up to push it to different accounts like, let's say the Rogers receipt goes to is associated with my real estate business, like as a realtor, and then I get a letter or an invoice from the from the city of St. Catherine's. I want that to go to my corporate bank account. Can I can I set it up that way?
Cherry Chan [00:17:05] No, you will have to get to opt out for account.
George El Masri [00:17:08] Oh OK. I see. Yeah. Yeah. What if you have multiple properties though. What, how would that work.
Cherry Chan [00:17:14] So if you have multiple properties and we will get like structure for you accordingly, like for example I have some personally owned property so that personally owned properties that is like four or five, I would put them in one quick box file and one account. The properties I own, the corporation has one quick book file and one account.
George El Masri [00:17:35] OK, OK, so that's something that you can help set up. Pretty much. Yeah. Right, absolutely. OK, perfect. Next up, so I see a list here of of apps that you use. If they're relevant to this, then great. If you just use them personally then that's fine. But I see arrow wage point pie and wonder list.
Cherry Chan [00:17:55] Yeah. So I don't use one the list anymore. I use this. No, no, but I do use a wage point. So for people like yourself or like a people who hire employees, wage point processing is the I guess the the app that I use to pay my employees. So it take money from my bank account and then just deposit it and then it can also have to function to file T4 for me at the end of the year. Does everything
George El Masri [00:18:24] cool. OK, that's good to know. Yeah. What about Arrow
Cherry Chan [00:18:28] is an accounting specific, small accounting firm, specific software. OK, so it doesn't really it's not relevant to
George El Masri [00:18:34] not to end user. Yeah. Yeah. OK, got it. OK. So that's kind of some of the apps. Did we miss anything or did we cover most of the apps that you use?
Cherry Chan [00:18:43] Those are most of the apps that I use to organize myself. I also have a lot of other apps in background that does different things for me.
George El Masri [00:18:54] Yeah, OK, fair enough. OK, so I wanted to touch on purchasing real estate in a corporation and some of the accounting stuff behind that. So for somebody who's, let's say, buying their first one in a corporation just to keep things clean from an accounting perspective, do you suggest that they transfer the down payment from there, let's say, from their personal hillock into their corporate bank account, and then have the down payment come out of there?
Cherry Chan [00:19:21] Yes, absolutely. There are multiple ways to own properties in a corporation. The cleanest way is to have the corporation on title, on everything in the corporation's name, and then sometimes that doesn't happen. So some investors like to own properties in trust for the corporation. So the property's name is still in their personal name. And the corporation is the beneficial owner, especially under those type of arrangement is important to have all the transaction going through the corporation bank account to actually prove to you that, hey, this is the real deal. The trust agreement is in fact in in effect. So the substance of the transactions matters.
George El Masri [00:20:06] OK, and what would be the reason that you would want the down payment to come out of the corporate account rather than out of your personal account?
Cherry Chan [00:20:13] Well, like you mentioned before, it's cleaner that way. Number two is that you have to it's easy for us as an accountant to track how much money the shareholder has put into the corporation. If the shareholder put in that, if you issue the check directly from your line of credit, personal line of credit to the lawyer, it's not through the corporation. Not saying that it is not a valid transaction. It's just that it's just that from a court, from the corporation perspective, I don't see the money coming in. So it's an off the book transaction. If you ever get audited on this shareholder loan amount that we recorded on the financial statement and sometimes we do that, it's hard to it's just a little harder to come up with the support and the numbers. Right.
George El Masri [00:21:02] It's an extra step and it's just a little bit more difficult. OK, fair enough. OK. So in this case where you have a joint venture agreement and so one person is an Ozanne title under their corporation. Yeah. OK, and let's say you have excess cash flows, you have a buildup of cash flows and then you want to pay out the the excess. So how how would that work if one person's on title and they they're the sole owners of the corporate bank account, is that as something that they should be concerned with so that they don't get taxed on dividends? Or is that how would that work?
Cherry Chan [00:21:42] So as to different two different things, actually, multiple things here, multiple concern. No one is typically under a joint venture agreement. Typically, two people are the joint owner of the bank account and typically they're in their personal name because there are for some reason, it is really difficult to get to a corporation to join the own bank account together. So it's typically into people's person's name. So when they have excess cash available in the bank account, each party would all the excess cash, whatever that would be, it could be like five hundred dollars a month per person. Now, from if you owned a joint venture in your corporation's name, technically speaking, that five hundred dollars would go through the corporation bank account because it belong to it belongs to the corporation. Now, if you want to take that five hundred dollars back to pay to for your own enjoyment in your personal name, you can either take it out as repayment of shareholder loan. Remember, when you purchase a property, you invest a lot of money and or the initial investment in the corporation is usually treated as a shareholder loan. So when you take money out, it could first go. It could first you the money taken out could be withdrawn as a shareholder loan repayment. Now, once the shareholder loan repayment is is all depleted, the second thing that you can do is to pay yourself a dividend or a salary because you are managing the property. You are eligible to claim salary from the from the corporation. Both of them would have each of them would have its own individual tax characteristic and tax impact in the corporation as well as personal name.
George El Masri [00:23:35] OK, ok, so. Situation, you probably want to consult with your accountants and figure out what would be best. It's kind of a case by case basis, OK? Yeah. Now this might be a little bit more complicated, but so let's say you have that same property that you purchased in the corporation and you refinanced it a few years later. And you have this extra capital now and you use that capital to buy another property under that same corporation. Yeah. What would happen with the excess cash flows in that case? Is that still a repayment of a loan? But like because you're kind of repaying yourself, your own corporation. So I'm not really sure how that would work.
Cherry Chan [00:24:12] So let me just clarify the case back first. Yes. You're saying we're still doing it as a joint venture, correct?
George El Masri [00:24:20] No, let's just say this one is not a joint venture.
Cherry Chan [00:24:22] This one is not a joint venture. You simply refinance the property in the corporation and then use that money to purchase a second property
George El Masri [00:24:30] under the same corporation,
Cherry Chan [00:24:32] under the same corporation. There's nothing happened. The initial investment is still there. There is no tax impact because the refinance money is still going to be used against the purchase of an other investment. Property interest is still deductible.
George El Masri [00:24:45] Yeah, OK, so the original loan amount still applies. You can still pay that out without paying a dividend or whatever.
Cherry Chan [00:24:53] Yes, exactly.
George El Masri [00:24:54] OK, that's fair.
Cherry Chan [00:24:56] OK. You mean that it hasn't been depleted completely.
George El Masri [00:24:59] Yes, exactly. Exactly. That makes sense. OK, what about income splitting. So that's something that you can take advantage of if if you have a corporation, can you can you speak to that a little bit and explain how that could be an advantage to an investor?
Cherry Chan [00:25:13] So there are opportunities, even under the new federal law that you would say investors would still can would still be able to split income with their children. But they have to be over the age of twenty five now instead of at the age of 18. If you do it properly, you would then still be able to share income with your lower income spouse and other low income family members using the corporation structure.
George El Masri [00:25:44] And I'm assuming that you would do that to reduce your tax liability.
Cherry Chan [00:25:49] Yes, absolutely. So say you have in personal name, if you were to own properties in your personal name and you already have a full time job, typically full time job with one hundred thousand dollar salary, any additional income would be taxed at forty three percent and up so forty three percent and up is quite a bit. But if we would be able to somehow shift some of this income to the low income spouse or low income children, that's over age 25. If it is in the corporation, then it would allow you to pay almost close to zero dollars tax in the personal side and 20 percent in the corporation side.
George El Masri [00:26:31] Right. So this income splitting only applies to the income that's generated by that corporation, correct?
Cherry Chan [00:26:38] Yes.
George El Masri [00:26:39] Yes. Yeah. So that hundred thousand that that person's earning and salary is still taxed at the regular regular amount.
Cherry Chan [00:26:45] Yes. Having a job, full time job. There's very limited opportunity to do income splitting or limited tax strategy available to lower your taxes, unfortunately. Right.
George El Masri [00:26:57] But for realtors. So I believe that as of October 1st, there is going to be an opportunity to incorporate. So does that mean that if that's the case, there will be opportunities to do income splitting as well?
Cherry Chan [00:27:09] So, yeah, that's a great question, because I'm glad you asked realtors soon to be allowed to incorporate. The thing is, they still in draft legislation right now. And I reviewed a draft legislation of what's required here, an income splitting opportunity as minimal ambulatory situation. There are still opportunities, but it's only when you reach the age of 65 and when you see to do realtor business, because realtor is considered a surface, but real estate investor, a long term buy and hold type of business is different. It falls under one of the offramp. It's not providing services. So then there are different income splitting rules involved.
George El Masri [00:27:51] OK, so just just because I'm curious, because I am a realtor, I was wondering at what point do you think it would make sense for someone to incorporate as a realtor? What income level or what should I be looking for?
Cherry Chan [00:28:05] Great question. We are in the process of doing a funnel, a webinar funnel, so webinar free webinar planning to do a free webinar to real estate agents who are on my list and also publicly to teach them at what level it is to for you guys to to decide whether you should incorporate. Everyone will get the invite. But on a high level, basically, you need to decide your personal budget, personal, I guess, post. No expense, the nondeductible expenses, so for a typical realtor we are talking about, hey, how much do you need for your living expenses, your housing calls, your food calls, and then plus your kid's hockey cause basically add them all up travel costs. These are all nondeductible, only the nondeductible expenses that we care. So we add them all up and decide how much money you need to take out from the corporation. And then we do an analysis and say, hey, maybe you only need to take out sixty seven thousand dollars from the corporation to survive. So we only take out sixty seven thousand. And meanwhile you are netting about one hundred thousand. So if I paid a tax in the corporation only twelve and a half percent and then I take out only sixty seven thousand four to support your personal life expense, I still have a delta of that thirty thousand dollars, let's say so I have about thirty thousand dollars left in the corporation that I can use to invest and grow a real estate portfolio. That's perfect. But meanwhile, if your situation is slightly different, whereas in the situation where you are only netting sixty seven thousand and you need the entire sixty seven thousand in your personal name, then that means, hey, there's no point who set up a corporation, right?
George El Masri [00:29:56] Yeah.
Cherry Chan [00:29:57] So that's how we decide. And that's why it's hard to give you a rule of thumb and say, hey George, you need to make sure that you earn over one hundred thousand.
George El Masri [00:30:06] Case by case. OK. And what would be a disadvantage of incorporating in that in that scenario is a just higher costs, more accounting fees, that kind of thing?
Cherry Chan [00:30:16] Yeah. Yeah, for sure. OK, fair enough. That is the biggest thing.
George El Masri [00:30:20] OK, so back to real estate investor stuff. Sure. OK, so we talked about incorporating for a buy and hold, but if you are flipping I would assume you would have to have a different corporation. You don't want to flip in your buying hold corporation. Yeah. So can you kind of speak to that a little bit.
Cherry Chan [00:30:39] Yeah. So flip the way that Income Tax Act treats the two type of investment is different just because you're buying and selling properties. A lot of taxpayers out there are under the impression that I'm mistaken and they are under the impression that just because you are buying and selling a property, that means automatically when I saw its tax as capital gain. So if you flip a property that also includes a Symond deal as well, if you flip a property, when I say you flip the property, you buy it with the intention just to hold it and renovate it up and then sell it for quite profit, that's mostly considered flips. And if you do that, 100 percent of the profit that you made from the deal is considered income. When we talk about business income, it means 100 percent of this income is taxable. Whereas on the other hand, if you do long term buy and hold, you receive rental income. You your goal is to earn some rental income over the long run. And a few years down the road, you may some money by selling the property rental property, the capital gain. The profit that you made from the sale from a long term buy and hold is considered capital gain and capital gains is 50 percent taxable. So one hundred thousand, only fifty thousand dollars is taxable. So very different. Now in the personal in the corporation side, if you put a flip that the business, it's considered business income, one hundred percent taxable, you put that slip in the corporation. The corporation is only the profit is only subject to that twelve and a half percent tax. So it's very beneficial if you continue to you have an objective to grow the business and keep just reinvesting the profit because you can reinvest in the low income tax rate environment. Now, the reason why you don't want to put the flip and the long term buy and hold in the same corporation is because CROI has no way to distinguish one way over another. Now, if you don't put them together, that's awesome, because if you put them together because he has no way to distinguish it, they would not allow you to claim something called capital cost allowance, which is the wear and tear of the property. The capital cost allowance is only allowed to be claim if you the whole property, the whole corporation, all the property is how in the corporation are only used for one for long term buy and hold for Flip's for all those properties that are considered Flip's technically they are considered inventory. You cannot claim capital cost allowance.
George El Masri [00:33:15] You. Mm hmm. OK, so if somebody is just flipping one property a year, does it still make sense for them to incorporate?
Cherry Chan [00:33:24] It really depends on some people who have again, who has already a hundred thousand dollar income. And then the flip is going to add another hundred thousand dollar income then. Yeah, of course it kind of makes sense. But then it goes back to the situation. Does he need the income immediately? Because if he incorporate and take out all the money immediately, then there is no point setting up the corporation. But if if the goal is to continue to roll with the profit, then yes, it makes sense.
George El Masri [00:33:54] OK, are you able to use the profit from your flip to go to buy hold? Yes, you can. And that would be there would be some tax advantages to doing that.
Cherry Chan [00:34:03] Yeah, because let's say you make about one hundred thousand dollars from this deal that the flip in the corporation, you pay twelve and a half percent. So that means you have eighty seven thousand five hundred left to buy properties inside a corporate corporate structure doesn't have to be the same corporation, but it could belong to a different corporation to buy properties. But you have eighty seven thousand five hundred two to do to do it now. Whereas if we hold Flip's in our own personal name. OK, let's say I have the one hundred thousand dollar salary to begin with. The next hundred thousand dollars just to run all the numbers up for easy calculation is taxed at 50 percent. So the same one hundred thousand profit that I made from the flip. If I already have a base salary of one hundred, add in the flip income of hundred. That additional one hundred flip income, it's going to be taxed 50 percent, 50 percent goes to see our efforts. Now, all of a sudden I only have fifty thousand dollars left to invest, whereas in the corporation I have eighty seven thousand five hundred.
George El Masri [00:35:07] Right. OK, so just to clarify, let's say you have Corporation A. which you do your flips in and you have Corporation B, which does your buying hold. If you have one hundred thousand profit and corporation A and you want to buy another property like a buy and hold property, you'd be able to buy under Corporation B, transfer that profit to their without. Yes. Would they have to be under the same holding company or they could just be two separate companies.
Cherry Chan [00:35:34] If it is under a holding company it's usually a little bit cleaner, but then if it is not a holding company, it's also fine. You can just transfer it over to the other side to do it. It will just be recorded as a loan so it won't be off the balance sheet of the flipping company.
George El Masri [00:35:54] But that can only be possible if you are the owner of both corporations. Like, I can't loan that money to someone else's corporation.
Cherry Chan [00:36:01] You can. You could if you want to, but you would not be doing it without a proper remuneration per say. Right.
George El Masri [00:36:10] OK, like I'm saying, for example, if I wanted to give it to my wife's company so she could buy a property.
Cherry Chan [00:36:16] Yeah, but then that gets a bit more complicated. Some agreement has to be signed and then some interest has to be charged.
George El Masri [00:36:22] OK, OK, fair. And just to clarify one more thing. So like in that scenario where you have the corporation, you flip and you use all the profits for your personal use, you're paying twelve and a half percent on the profit. Plus you're paying your personal income tax on the amount that you're drawing out for yourself. Correct?
Cherry Chan [00:36:40] A dividend. Yes.
George El Masri [00:36:42] Yeah. So you're you're you're pretty much getting taxed more in that scenario than if you were to flip it in your personal name?
Cherry Chan [00:36:47] No. So there is something called tax integration in Canada. That's how the principle, the very important principle that the I guess the original designer of the Income Tax Act decided to follow, essentially the income tax should not be the determination of how you want to own anything, any income producing property. So the money that you would pay in the corporation, twelve and a half plus all the dividend that you will. Receive if you were to pull out in the same year and report it as your personal income, which will be dividend income, the tax that you would otherwise pay on the dividend income plus the twelve and a half percent in the corporation would equal to the total amount of taxes that you would have to pay if you were to own that flip in your personal name and put
George El Masri [00:37:40] it on some equal. Yeah, there would be equal regardless in that case,
Cherry Chan [00:37:45] technically, but it's not always the case. It's all usually off by a few percentage points. But that's the whole prima's the whole reason.
George El Masri [00:37:53] OK, go that way. OK, yeah. We covered a lot of stuff. I think some people might, might lose, lose their train of thought here listening to this. But I hope that there was some good stuff. Is there anything else that would be important to know as an investor either for buy and hold investors or flippers.
Cherry Chan [00:38:12] Yeah, there are so many different things I could be that could be useful from the type of deductions that they can take to setting up the right system, to having the proper corporation structure and having the right team on their right team of professionals to work with them. They are all very important. And just because I've got so many stories that I've heard from my my prospects and clients, they will come to me and say, hey, I heard about this. That's the reason why I'm doing this. But just because you heard about it from someone else and that person that's doing it, it could be based on a very different set of circumstances and it may not be applicable to you. So it's very important to have the professional having that consultation.
George El Masri [00:39:02] Yeah, definitely. For sure. OK, that's great. Well, I appreciate you sharing all that. Maybe one last thing before we move on to the next section, I'm just curious to know how many properties would you recommend having under one corp before you open up the second one?
Cherry Chan [00:39:18] This is a tough question. It's not really a tax question is rather risk tolerance level question. Recently I've heard about a story actually, I heard about it from my team and then my team heard from one of my team members, heard from her brother, who's a dentist, and he heard it from the patient. So I don't know how accurate it is. The story was that one of the tenants got burned or accident, got burned from cooking something, and he sued the landlord for not putting a smoke detector in the kitchen for five million dollars. And for some reason, this guy won. I don't know how the tenant one was able to one to win, but he won. And so he had to the landlord had to liquidate everything. Now, if you ask me in a perfect world, if cost is not an issue, of course, you have to let each property should be held in one corporation because the rest would be all diversified and limited to just that particular property. But the reality is there is a cost associated with filing all the tax return. Typically, my clients are comfortable with anywhere between five to 10 properties, but anywhere with any more than that, it would be really tough to put it all together in the corporation.
George El Masri [00:40:48] Right. OK, so in that example with the fire and the tenant suing the landlord, so let's see that one property was in the corporation. So in that case, then they could only lose that one property if they were sued or could they pursue them for their other assets as well
Cherry Chan [00:41:07] for all the other assets held within the corporation? That's it. Yes. So if you're not personally owned.
George El Masri [00:41:14] Yes. If you have, like your primary residence, you have ten other corporations. They all have properties. That tenant can't pursue any of those other properties, even if they sue them for five million dollars and that that property's worth, say, four hundred thousand.
Cherry Chan [00:41:27] So I have to be careful because I'm not. I'm not. Yeah, yeah, yeah. You're right. From a legal perspective, a lawyer would be a better position to answer that question. Now, I can't talk to that case specifically because I really don't have all the detail. Now, in theory, if the if the property is owned within the corporation, technically you sue the owner, the owner is the corporation. And then so they can technically go after all the asset within that company. A Yes, you can accompany B to Z, you would not be that tenant would not have the right to sue for all the other ones.
George El Masri [00:42:04] Right. I understand. Yeah. Yeah. That's more of a lawyer question. Yeah, you're right. OK, well that's good to know. So that's definitely an advantage to having a corporation for your for your personal protection. And you were saying five to ten probably. Most people are comfortable with, but it's it's a matter of your your personal risk tolerance,
Cherry Chan [00:42:23] the tax structure is the same. I mean, tax impact is the same. Whether you have one or 10 or 50, unless you hire more, that you can hire more than five full time employees and the tax rate would be different.
George El Masri [00:42:35] Got it. OK, perfect. So before we jump into the next section, is there anything you want to add?
Cherry Chan [00:42:42] Oh, no, it's good. Thanks, S..
George El Masri [00:42:46] Yeah, yeah, yeah. Five random question. So, yeah, everybody everybody pretty much gets a different question, anyone that I interview. So this is the first time you're going to anyone's going to hear this. But the first question is, what's the funniest joke, you know, by heart?
Cherry Chan [00:43:06] Funniest joke I know about your hard. I don't have any
George El Masri [00:43:14] OK to worry about it. That was a tough one when I read it, I thought most people probably don't know off the top of their head.
Cherry Chan [00:43:21] Yeah, I would laugh at, like, all my kids joke, but then they are not really that funny. Yeah, I would laugh at them because they are my kids.
George El Masri [00:43:29] Yeah. Yeah, fair enough. OK, what's the best show currently on TV.
Cherry Chan [00:43:35] I'm so sorry I don't watch TV. Now I can say that I watch most of Raptors, the Raptors closely, the Raptors play off. Yeah, that's the only thing that I watch.
George El Masri [00:43:45] Yeah, OK. I'm kind of I'm with you on that, although they're disappointed right now. But still.
Cherry Chan [00:43:50] I know. I know they lost last night.
George El Masri [00:43:52] Yeah. So this is we're recording this on September 2nd. So they're down to go to Boston right now.
Cherry Chan [00:43:59] Yes. Yes. They will win the next one year before. Yeah.
George El Masri [00:44:03] OK, what sci fi movie or book would you like the future to be like.
Cherry Chan [00:44:15] Sci fi movie, so it's kind of like Star Wars, right?
George El Masri [00:44:18] Yeah, like science fiction.
Cherry Chan [00:44:23] I don't read science fiction, OK? I think the. I think the only movie that I watch would be Star Wars, OK? And I don't think I necessarily want Star Wars, although. The. They always win. Yeah, the force always wins, right? Yeah, I see it right.
George El Masri [00:44:47] I don't know. I've never watched Star Wars, so I'm not really person ask,
Cherry Chan [00:44:51] although I feel like we are moving toward. There was one book that I read when I first came to Canada. It's The Big Brother, and there's always that big brother watching over you. I think I feel like we are moving toward that rather than Star Wars.
George El Masri [00:45:07] Yeah, like we're starting to see a little bit more with a little more control now.
Cherry Chan [00:45:11] Yeah. Oh, for sure. Like, I mean, your phone is always listening to you.
George El Masri [00:45:15] Oh yeah. That's scary. I yeah that scares me for sure. OK, what's the best way you or someone you know has gotten out of a ticket.
Cherry Chan [00:45:28] Best way?
George El Masri [00:45:29] Yeah, the best way
Cherry Chan [00:45:32] we've heard all these stories, but I could share a personal story. I was young and I was driving my car. I was young and fearless and a little bit stupid at the time. I was driving a nice car and I came from a show that was in a concert that was hosted in Casino Rama. So, you know, it's a long four hundred and I had to drive back at night time. It was late. It was like 12:00 and I was speeding and I got pulled over by a cop. Yeah. And the I was speeding maybe 30 kilometers over. Yeah. So the car was about like stop my car and said, did you know that you are is this your car. And I was young right. I was, I was driving a Mercedes so it was a valid question like is this really your car or your dad's car? And I said, no, it's my car. And and he was about to give me a ticket. And at the end it was all the way lower to like maybe just a thirty dollar. I said nothing. I've put my face because I was scared and nervous and then I didn't know how to react to it. And my friends was like, well, did you know Holomisa? Like, did you even recognize how nice the cop was to you? I'm like, Oh no, I was just scared.
George El Masri [00:46:49] Yeah, that's pretty lucky. I think I think cops are a little bit nicer to women from what I've heard. Yeah. Yeah. I don't know why, but it just seems like if you can cry in front of the cop, I think they'll be pretty nasty.
Cherry Chan [00:47:03] I couldn't even bring myself to cry. I'm like many thoughts went through my mind, but I just couldn't bring myself to cry. I was livid.
George El Masri [00:47:10] Yeah. Yeah. OK, that's a good story. The last question is what success principle do you live by?
Cherry Chan [00:47:17] Many. I have so many different principles that is hard to keep track of. So we just went through our in our companies. We just went through the core value selection of core value. One of them is core success is best when shared. Learn more and educate others. I always do the right thing. There's one more I don't remember, but these are pretty cool one. To me, being a mom made a huge difference in my life. It provides a lot of meanings. I want my kids to turn out a certain way. That means I have to live in that certain ideal that I want to want them to to to be to model, to give them the model, to model after. So and that is what I'm trying to do. Lead by example.
George El Masri [00:48:06] Perfect. That's great. Well, that's very good. So before we finish things off here, do you want to tell people how they could reach you and maybe like share your website or something like that?
Cherry Chan [00:48:18] Yeah, absolutely. You can visit my website. I do a weekly text tip, blog post. I share with my my my list. And we have about eight thousand people on the list. And the website is really the tax tips. That's the real estate. It's not USA. It's real as they are. Yeah. NSDAP because of my accent. Because of my accent. People don't understand it. Real estate tax tips. Thoughts. Yeah. Yeah.
George El Masri [00:48:49] Well put it in the description too so they can click.
Cherry Chan [00:48:51] OK, awesome.
George El Masri [00:48:52] Thank you. Yeah. So that's the best way to reach out to you. Just go on the website, check out all the information's there.
Cherry Chan [00:48:57] Yeah. Sign up to the free weekly text tip and if you have you want to reach out to me, you can respond to the to the, to the weekly email or you can submit your questions there as well.
George El Masri [00:49:12] Awesome. Thank you very much. Really appreciate it, Terry. And any final messages?
Cherry Chan [00:49:19] No, enjoy the moment reason the I have a client who had issues with mental health and unfortunately passed away. I think it's the most important part is to enjoy what you have right now. Be grateful. There's always something that you can appreciate and be thankful for.
George El Masri [00:49:36] Well said. Well said. Yeah. Thanks a lot. All right. Take care. Thanks. Thanks once again for listening to another episode of the Well Off podcast, just want to remind you that if you do appreciate the content, all I ask is that you comment, maybe like it if you can, on the platform that you're listening to it on and finally share it with friends and family. I'd love to get the message out there and it would mean a lot if you can share it. And finally, I just wanted to offer you as a valued listener, a free copy to the roadmap to real estate investing, which is a document that I've put together which helps you identify what strategy would best suit your needs at this current time. You go over certain things that are included in this document step by step, and it'll hopefully provide you with some clarity. So have a look. You can go to w w w well off Dossie Forward Slash guide to download your free copy.