The Ontario Real Estate Association (OREA) recently announced that effective Oct. 1, 2020, Ontario realtors will be permitted to operate their business through a personal real estate corporation.
This opportunity for Ontario real estate agents to incorporate provides increased flexibility for agents to structure their business affairs. There are benefits associated with incorporation that can now be accessed by Ontario realtors, including: lower business taxes, tax deferral, limited liability associated with non-realtor services and the possibility of income splitting.
Even though there are benefits to incorporation, Ontario realtors should not incorporate without first consulting with a professional advisor to ensure that the advantages of incorporation outweigh the disadvantages.
A corporation is a separate legal entity which demands a higher level of record keeping in order to separate personal expenses from the corporation’s business expenses. Accidental funding of personal expenses or assets through the corporation could result in taxable benefits assessed to the real estate agent.
The corporate structure must be properly set up to adhere to the specific regulations of the Trust in Real Estate Services Act. This corporation will also be required to prepare financial statements and file a corporate tax return on an annual basis, which comes with potential additional compliance costs.
It is also important to note that additional tax provisions introduced in the last few years has resulted in reduced income splitting opportunities and additional complexity associated with specific corporate structures.
Although there are potentially additional costs and more complexity with corporations, it can still be very beneficial given the right circumstances. For example, the utilization of the tax deferral to reinvest in corporate assets like real estate or other investments that can be utilized to fund dividends on retirement. There is also a rule that will allow income splitting of the dividends between spouses when the realtor attains 65 years of age.
Incorporating your realtor practice is a very important decision and it should be viewed as a potential investment that requires the appropriate due diligence to properly understand the advantages and disadvantages. Before incorporating, please contact your Baker Tilly advisor to review all aspects of incorporation to determine if it is right for you.
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