Personal Real Estate Corporation (PREC)
Is incorporation right for your real estate business?
Effective October 1, 2020, Ontario realtors will now be permitted to incorporate their own Personal Real Estate Corporation (PREC) as announced by the Ontario Real Estate Association (OREA).
What are Personal Real Estate Corporations (PREC)?
The Government of Ontario’s introduction of new legislation, Trust in Real Estate Services Act, 2020 (“TRESA”), permits Ontario realtors to form Personal Real Estate Corporations (PRECs). Basically, this means that real estate professionals and brokers will now be able to incorporate their business and arrange for their self-employed revenue to be paid into a PREC.
When you set-up a PREC, you are forming a legal corporation that will be a separate taxpayer. It will receive the revenue from your real estate business and pay the expenses of your real estate business. Many realtors choose to incorporate to take advantage of certain tax benefits.
Advantages of Incorporation for realtors
This opportunity for Ontario real estate agents to incorporate allows them to benefit from a wide range of tax planning and other opportunities. The advantages associated with incorporation that can now be accessed by Ontario realtors, include:
- lower business taxes,
- tax deferral,
- limited liability associated with non-realtor services,
- lifetime capital gains exemption, and
- possibility of income splitting.
Is Incorporation right for you?
The process of incorporation is intensive and can introduce added costs and complexity. Although there are several advantages to incorporation, it may not be recommended for every real estate agent in Ontario.
Realtors may want to explore the potential benefits of incorporation if one or more of the following scenarios apply:
- Have income in excess of personal spending requirements
- Want to take advantage of income tax deferral opportunities
- Want to invest excess cash in income-producing assets
- Want to save more money for retirement
- Have the potential to split income with family members
Due to its complexity, Ontario realtors should not incorporate without first consulting with a professional advisor, as each realtor’s financial situation must be carefully reviewed to determine if incorporation is the right approach.
Contact our advisors
For a better understanding if incorporation is right for your business, please contact our Baker Tilly WM advisors below to learn more. Our advisors would be pleased to assist real estate agents in Ontario who are interested in setting-up their own PREC and taking advantage of the potential tax savings.
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Anthony Barone, CPA, CA |
Mark Sherritt,CPA, CA |
Related sources:
- Incorporating your realtor business in Ontario (article)
- Industries - Real estate (service)
