Realtors in Ontario now permitted to incorporate with the passing of Bill 145, Trust in Real Estate Services Act (2020). Once supporting regulations are in place, they will provide opportunities for these people to incorporate by establishing a Personal real estate Corporation (PREC)
Is incorporation right for you?
As with any other corporation, a PREC is a separate legal entity from its shareholders. This will bring in a wide range of tax planning and opportunities.
- Better tax rates compared to personal taxation
- Tax deferral opportunities
- Ability to save and invest money in income-producing assets
- A life-time capital gains exemption of $+800K
- Income splitting with family members
- Estate planning opportunities upon retirement
If any of the above sounds interesting, you might consider incorporation your real estate business. However, there are preconditions to do so.
Requirements for a PREC:
- A PREC must be registered under the Ontario Business Corporations Act.
- All voting shares of the company must be held by the Realtor@ and he/she must be the only officer and director of the corporation
- Non-voting shares must be held only by immediate family of the Realtor@
- The PREC should register an HST account with CRA after incorporation
- The PREC cannot engage in trading of real estate other than providing the services of its controlling shareholder to the brokerage
- RECO must be notified of the legal name and address of the PREC before receiving any remuneration.
- There must be a written agreement between the PREC, controlling shareholder and brokerage which governs the relationship and ensures the PREC does not hinder the brokerage in its duties under the legislation.
- The PREC and its shareholders cannot represent to the public that the PREC carries on the business of trading in real estate.
- The individual registrant’s professional liability will not be limited by use of a PREC.
As discussed above, incorporating a PREC and taking advantage from the above benefits require proper planning. If you are considering setting up a PREC, Parsian Accounting. Payroll, and Efile Tax Services can help you with all your needs from incorporation, compliance and most importantly tax planning.