Originally Published October 22, 2020
Since October 1, 2020, realtors in Ontario have been able to create a Personal Real Estate Corporation (PREC). This change, long advocated by the Ontario Real Estate Association (OREA) and the Real Estate Council of Ontario (RECO), brought Ontario in line with many other provinces and professions. From tax savings to liability protection, incorporating can bring significant benefits for those in the real estate industry.
This blog will guide you through what a PREC is, explain its advantages, and show you how Ontario Business Central can help you get started.
What is a Personal Real Estate Corporation (PREC)?
A PREC is a type of business structure specifically designed for real estate professionals. It lets real estate agents in Ontario run an incorporated business. They can still handle real estate transactions through their brokerage while operating under a PREC, meaning realtors can access tax benefits and maintain separation between personal and corporate income.
Unlike traditional corporations, a PREC comes with specific rules set by RECO. These rules cover things like the name of the corporation to tax on split income. It’s best to review RECO’s rules before incorporating.
Only a realtor registered with RECO can be the sole director and controlling shareholder. This realtor must also have an Ontario real estate license.
Benefits of Incorporating as a Realtor
Many realtors wonder how much do real estate agents make in Ontario and whether incorporating can enhance their earnings. Ultimately a real estate agent salary in Ontario is often based on the area you are working.
Tax Advantages
Ontario Realty Corporations allow you to take advantage of corporate tax rates, which are significantly lower than personal income tax rates. The base personal tax rate in Ontario can exceed 29%, while corporate rates are around 13%. This difference can have a notable impact on a realtor salary in Ontario. By keeping income within the corporation, realtors can defer personal taxation until they withdraw funds, creating opportunities for long-term tax savings.
Liability Protection
While liability protection for a Personal Real Estate Corporation in Ontario is limited compared to other types of corporations, it still provides some separation between personal and business assets. This can be beneficial in certain legal scenarios involving real estate transactions.
Income Management
By managing cash flow in your business, you can plan for large expenses. You can also reinvest in your company or save for future opportunities. This flexibility is a significant advantage over sole proprietorships.
Considerations Before Incorporating
While the benefits of a Personal Real Estate Corporation are clear, it’s important to weigh the costs and responsibilities:
Higher Setup & Maintenance Costs
The cost of incorporation is higher than registering as a Sole Proprietorship. Additionally, you’ll need to file separate corporate tax returns, which may require hiring an accountant. These expenses are ongoing and should be factored into your decision.
Increased Administrative Work
Incorporation brings more paperwork. Keeping a well-organized Minute Book and detailed records is essential. You’ll also need to stay compliant with RECO and file corporate documents yearly.
Steps to Incorporate a Personal Real Estate Corporation
Becoming a real estate agent in Ontario and connecting with a realtor firm or real estate brokerage is encouraged before you proceed with registering your PREC Real Estate Corporation. Additionally, you must obtain your real estate license in Ontario.
If you’re already a licensed real estate agent working for a real estate broker, here’s how to get started:
Step 1: Name Your PREC
One difference between a PREC vs corporation is your PREC must follow naming guidelines set by RECO. The name will not be used for advertising, due to this it must not imply it is a brokerage.
Step 2: Prepare Incorporation Documents
To file for incorporation, you’ll need to complete the Articles of Incorporation for a Professional Corporation.
The corporate share structure for a PREC requires precise wording to meet requirements. These include:
- Section 5: Restrictions on business activities.
- Section 8: Restrictions on share transfers.
Ontario Business Central provides a draft for you to have reviewed by RECO or your lawyer, ensuring compliance with all regulations.
Step 3: File Your Incorporation
Once your draft is approved, Ontario Business Central provides standard filing within 1-3 business days. For those needing faster service, we offer rush same-day service.
Rules & Restrictions For PRECs
Every PREC must meet specific requirements, including:
- Director must be a licensed real estate agent in Ontario.
- Non-voting shares, if on record, can be held by family members or the director only
- The corporation cannot engage in activities outside trading in real estate.
For a detailed checklist, consult RECO’s PREC Checklist or reach out to Ontario Business Central for guidance.
How Ontario Business Central Can Help
Incorporating a Personal Real Estate Corporation can seem daunting, but Ontario Business Central makes the process easy. With over 30 years of experience, we offer:
- Fast Turnaround: Option for same-day incorporation service.
- Personalized Support: Knowledgeable staff available to assist with every step.
- Accuracy: Draft documents provided for RECO review, ensuring compliance.
Our goal is to support your journey to becoming a successful real estate professional. If you have any questions or need assistance, don’t hesitate to contact our team.
Take the Next Step Toward Incorporation
In the dynamic world of real estate, understanding the needs of buyers and sellers is essential for success. Whether you’re buying and selling properties or assisting clients, a clear and organized process makes every transaction smoother.
Incorporating as a PREC offers valuable benefits, from tax savings to better income management. If you’re serious about growing your career in real estate, now is the time to consider this option. Visit Ontario Business Central to start your incorporation process today.
inquiries@ontariobusinesscentral.ca
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Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.
