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I am not a tax professional but this was how I was advised to set it up.

Provided that you are actually providing property management services (not just collecting rent) you can charge a management fee and pay it at a rate that is commercially reasonable. That means paying fees at a rate that any third party manager would charge. In my case I call several third party managers that I know and get written proposals on what they would charge to run my buildings. They typically run anywhere from 2.5 to 5% of net rent depending on the number of tenants in the building. So I pick a number in the middle and charge that as a fee. So assuming a $1 million property at a 10 cap and 3% management fee that is $3000 you could take out on base rent. It is standard practice to charge a fee on the expense recoveries as well, so there is a little more there.

You are free to take a reasonable salary as well.

You can pay the fee to yourself or take advantage of some income splitting opportunities and have the fee paid to a corporation owned by your spouse or to your spouse directly. As long as he/she is doing some property management, ie collecting rent, calling the plumber, getting the snow plowed bookkeeping etc ...

There are ways to get get cash out via dividends by playing around with CCA, depreciation and debt. But you must be very careful as there are many limitations both with CRA and the business corporations act. So in my experience it just isn't worth the brain damage

Do yourself a favour and get professional advice on how to best set this up.

BTW, a 10 cap for a government covenant almost sounds too good to be true. Get more info on this agency because buildings with gov't covenants go for around a 6 cap.

Good luck!!

PS I own REITS as well as my own portfolio of property. But thats a whole other post.
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