Real Estate Agents can now incorporate in Ontario. As of October 1, 2020, legislation passed in Ontario allowing self-employed real estate agents to incorporate and earn their commission income through a Personal Real Estate Corporation (“PREC”)

While a PREC is not considered a professional corporation under the Ontario Business Corporations Act, it still allows real estate professionals many of the same benefits.

Are you wondering if incorporating is the right move for you? Please get in touch with us so that we can discuss with you various pros and cons to help you decide whether or not to incorporate your real estate business.

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TAX TIP      The biggest benefit for a successful real estate agent is tax deferral. In Ontario, the Small Business Deduction allows up to $500,000 of active business income (e.g. real estate business income) to be taxed at the lowest corporate rate of 12.2% for 2020. Income in excess of the small business limit, would be taxed at the general corporate rate of 26.5%. In contrast, the highest personal tax rate is 53.53%, which may lead to a large deferral of tax. This means there will be more funds left in the corporation to purchase advertising, hire employees or invest. Once a real estate professional gets to a point where they are earning more than what is required to live, the PREC will likely make sense. Whether or not you are in the real estate industry, if you are looking for professional advice whether to incorporate any type of business, please contact us now.


How does a PREC work?

●  The PREC must be incorporated or continued under the Ontario Business Corporations Act.

●  The PREC will have a single controlling shareholder who must be a real estate broker or salesperson registered with the Real Estate Council of Ontario (“RECO”) (i.e. only the real estate broker or sales person can own voting shares of the PREC, referred to as “equity shares”).

●  The controlling shareholder must make all the decisions for the PREC. There should be no written agreement or other arrangement that restricts or transfers powers of the controlling shareholder to manage or supervise management of the business and affairs of the corporation.

●  Any non-voting shares (also referred to as “non-equity shares”) must be owned directly or indirectly by family members (spouse, children, parents, trust for minor child) of the controlling shareholder.

●  Only one registered real estate professional may own equity shares of the PREC, and thus control the corporation. However, non-equity shares may also be held by another registrant if they are a family member of the equity shareholder.

● Like other professional corporations, a PREC does not limit the professional liability of the controlling shareholder.

● While the services provided by a corporation governed by a regulatory body often restrict the corporation’s activities to practicing the profession, as a PREC is a regular business corporation, there are no restrictions that limit its ability to carry on other income-earning activities, such as passive investing or other entrepreneurial ventures.

● There are no restrictions on naming. The name of the corporation does not need to include “Professional Real Estate Corporation”.

Are you wondering if incorporating is the right move for your Business?

Please get in touch with us so that we can discuss various pros and cons to help you decide whether or not to incorporate your Business.


TAX TIP      You can use the income tax deferral to help plan for retirement. For example, you could use excess funds in the corporation to purchase investments, life insurance or an Individual Pension Plan. You may achieve tax savings if you withdraw the amounts from the corporation in retirement at a lower rate. In Ontario, you could draft a second will that deals with just your ownership in your corporation. This allows the shares of the company to pass to your beneficiaries without estate administration taxes (probate fees). These are just some examples of how corporations provide more flexibility. For additional information about advantages and disadvantages of incorporating your Business, please contact us now.


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