Personal Real Estate Corporations (PREC) Permitted in Ontario
On October 1st, 2020, the Ontario government permitted Personal Real Estate Corporations (“PRECs”). PRECs allow REALTORS to access the business advantages of incorporation, including tax and income planning benefits.
As a Real Estate Agent, should you incorporate?
What are the Pros and Cons?
- Lower corporate tax rate – Incorporated Agents can enjoy the 12.2% corporation tax rate for net income remaining in corporation, the amount withdrawn will be be taxed at your personal rate. Since you only take partial income from the corporation, your personal tax rate is much lower versus an average of 30% to 40% personal taxes on entire earnings.
- Lower tax planning deferral across multiple years to maximize gains/losses. Incorporation allows you to defer tax in a good year and modify a bad year by withdrawing enough money to utilize the basic personal deduction, maximizing your RRSP, TFSA and various investment vehicles without triggering higher tax.
- Income splitting among your spouse and some family members who work for you. (Tax rules apply, please consult your accountant)
- Incorporation charges – This could range from $500 to $1,500, depending on how you accomplish this crucial aspect of the PREC. DIY or engage a lawyer or work with MY PARTNERS LLP.
- Higher accounting fees – You might be paying additional fees for corporate filing, T4, T5 and payroll remittance filing
- Stricter compliance – If you choose payroll, you will be required to submit T4 information and make remittance payments on a monthly basis to stay in compliance with CRA.
- Need a divided T5 report. MY PARTNERS LLP will provide guidance on why and when you need to do this.
Let MY Partners LLP help you decide if incorporating your real estate business is good or bad for you
Work with us. We take care of everything for you, the A-Z’s of establishing your PREC.
From our point of view, incorporation has more advantages than disadvantages by providing you lower tax payments and flexibility. Your PREC will be tailored to your needs and requirements.
MY Partners LLP is a reputable accounting firm and we focus on high quality accounting and tax services with competitive fees. We guarantee all work is done by licensed CPA’s with superior customer service.
Take advantage of the benefits a Personal Real Estate Corporation (PREC) may offer you.
Enjoy the peace of mind that partnering with a professional and experienced firm like ours brings to you. We will tailor your PREC to your needs.
A corporate entity (the PREC) has more ability to distribute its revenues and income in various ways than an individual can. The PREC regulations allow family members (include blended families), being children, parents and spouses, to own non-voting, and non-equity shares of the PREC. The controlling Registrant (called the “controlling shareholder” in the PREC Regulation) can own voting, equity shares.
The PREC allow distributing its business income as salaries to everyone (including the controlling Registrant, family members and others) and issuing dividends only to shareholders of the PREC. To achieve tax splitting you should get tax advice from an accountant to ensure you get the tax consequence you wish, it depends on many factors and tax rules are complicated, splitting income could result in more tax being levied if you choose the “DIY”.
Yes. A PREC falls under the rules of the regular Ontario Business Corporation Act. There are no requirements that it prevents from carrying on other activities, including passive investing. As for buying and selling a property, there is a limitation you must be aware of, PREC rules prohibit the voting shareholder/registrant to trade in real estate. However, non voting/equity shareholders can do it, even if he or she is the registrant.
The controlling shareholder of the PREC should be a Registrant with RECO under the Trust and Real Estate Services Act (“TRESA”). The PREC itself need not be a Registrant, although the income and taxes are reported in PREC. The Registrant is required to provide appropriate notice to RECO if the Registrant utilizes a PREC. RECO has indicated in its guidance how notice is to be do it here: https://www.reco.on. ca/precs-ads/
Just like incorporating any business under the Ontario Business Corporations Act, there are no limitations or specific requirement to naming conventions. You can do a name search for a fee to make sure the name was not used. However, the name must meet the normal rules for corporate names and should not suggest that the PREC itself is trading in real estate. An example of an appropriate name would be the individual Registrant’s name followed by a “Professional Real Estate Corporation”. For example: ”Mike Smith Professional Real Estate Corporation”.
If you are currently working as a team, you can use the team name as your PREC but make sure your other team members not using the same name or similar name which could cause confusion. You will therefore need to distinguish your PREC’s name from any name other team members choose for their PRECs. This means your other team members may not use the same name or a confusingly similar name.
The PREC does not need to register with RECO. The PREC is a normal business corporation and is subject to all of the normal obligations of a corporation. Government fees include: currently $300 to file articles of incorporation, name search fee current $60 if you decide not using a numbered corporation. It is recommended that professional legal and accountant to set up and there is their fees. All corporations, including PRECs, are required to file an annual corporate return, as well as HST returns, if salaries or dividend paid, HST and Payroll registration will be needed and payroll remittance, T4 and T5 need to be filed. The filing fee is nominal, If accounting professionals are utilized to file same, there will be professional fees to consider.
One could look at the PREC as an additional separate entity or person, as good as it shelter your liability, It can be sued and since it will be providing the services of the controlling Registrant, consult your insurance broker with respect to appropriate insurance coverage for the PREC.
- One time Incorporation $599 including government fees
- Our $100 per month package includes: Accounting and tax advice up-to 2 hours a year Corporate return Personal returns up to three family members HST return, T4, T5 reporting up to 3 person
- Value Add on services:
- HST registration $50
- Payroll registration $50
- payroll remittance calculations $50
- Bookkeeping service starting $50/m
- In depth business and tax consulting – $100/hour