Realtors in Ontario can now form a Personal Real Estate Corporation.
Here is a brief account of some of the advantages of PREC:
- It allows Realtors with the PREC to defer tax as they can benefit from the low small business corporation tax rate on the first $500,000 of active business income for the year. This is really beneficial to realtors making large amount of income as they will not have to pay income tax at their top marginal tax rate.
- It allows the Realtors to withdraw from PREC only the funds they need and pay personal tax on that amount only. They will receive a T4 slip (salary) or a T5 slip (dividend) for amounts they are receiving from the corporation.
- PREC can do activities other than trading in real estate. They can invest in stocks, bonds, etc. They can purchase real estate or earn rental income. Although care should be exercised to keep assets separate from operating company in order to protect against any exposure arising from lawsuits, etc.
In addition, following is a list of some of the items that should be considered when forming a PREC:
- All equity shares of the PREC should be showed by the controlling shareholder.
- All non-equity shares of the PREC should be owned directly or indirectly by a family member of the controlling shareholder.
- Agents / PREC shareholders must be “employed” by a brokerage.
- PREC must be incorporated under OBCA. (federally incorporated companies cannot be used as a PREC).
- Written agreement required between Agent, PREC and Brokerage.
- PREC cannot be a brokerage.
If you are a real estate agent / broker looking at forming a PREC, it is highly recommended that you contact your CPA to determine their suitability and resulting tax implications for you. You can also reach us by email at email@example.com for more information.
Moaaz Sheikh, MBA, CA, CPA
Moaaz Sheikh obtained his CA designation in 1999 while working for PwC in Toronto. He subsequently worked for Magna International as a cost estimator and program accountant for over 3 years. Moaaz has an MBA with a specialization in marketing and has extensive experience working in his family’s business. This unique background enables Moaaz to better understand his client’s Taxation, Accounting, and Business needs.