After years of advocating, as of October 1, 2020, Ontario’s realtors and brokers can now take advantage of something which had previously been unavailable to them: incorporation. This type of corporation is called a Personal Real Estate Corporation (“PREC”).
Real estate professionals assessing incorporation need to weigh several factors. Some of the potential benefits of a PREC include:
(1) Tax deferral;
(2) Greater flexibility in remuneration (i.e. the ability to select either dividends or a salary); and,
(3) Subject to tax on split income rules, income splitting with family members.
This last point is most relevant when family members are actively involved in the real estate professional’s business or where the real estate professional is approaching retirement.
PRECs will not make sense for all real estate professionals. Incorporation will more likely benefit those higher-income realtors and brokers whose earnings exceed their living expenses. PRECs also bring with them added compliance requirements and running costs.
The PREC’s corporate structure, and the statutory restrictions applicable to it, must also be considered. For instance, the realtor or broker must be the PREC’s sole director and its president (no other officer of the PREC is permitted). The realtor or broker must own all voting shares in the PREC. The PREC cannot carry on the business of trading in real estate other than providing the services of its controlling shareholder to the brokerage. There must be a written agreement in place between the PREC, the controlling shareholder and the brokerage.
The above list is not exhaustive. There can be no doubt, though, that for many of Ontario’s real estate professionals the PREC represents a long-awaited and exciting opportunity. Please contact Lerners LLP today to evaluate whether a PREC makes sense for you.