Establish Personal Real Estate Corporations
For several years, the Ontario Real Estate Association (OREA), Real Estate Council of Ontario (RECO) and realtors across Ontario have been working together to allow realtors in Ontario to establish a professional incorporation. Finally, as of October 1st 2020, realtors are now able to establish Personal Real Estate Corporations aka (PREC). Other professionals, such as dentists and doctors have long been able to establish professional corporations, and realtors throughout B.C, Alberta, Saskatchewan, Manitoba, Quebec and Nova Scotia have been granted this ability for many years. Allowing realtors to incorporate provides access to benefits that others have through their professional corporations.
In general, Professional Corporations are overseen by their respective governing bodies, who would set regulations for naming the corporation, who can be a director or shareholder and what the restrictions are on business activity. With a Personal Real Estate Corporation, the same items apply where the individual realtor works together with RECO in establishing the new incorporation according to the requirements by their individual governing body. This is a big step for Ontario real estate salespeople, as it brings them one step closer to more tax fairness for realtors in Ontario, as they await the final passage of Bill 104.
What benefit does incorporating have?
This is a big step for Ontario real estate salespeople, and provides the opportunity to access tax advantages not available to the individual prior to incorporation capabilities. The final passage of Bill 104 remains and in completion of this bill, it will bring with it much more fairness for realtors across Ontario.
Registering a PREC allows Ontario realtors to participate in the business of trading in real estate and to receive remuneration from a brokerage that will be earned within the advantageous tax benefits as director and controlling shareholder of the corporation.
Allowing realtors to create a Personal Real Estate Corporation can give them access to other advantages that come along with incorporating. This includes, some types of liability protection, and tax deferments. Trading in real estate through a PREC allows real estate salespersons to keep any income generated within the corporation, separate from their personal income. In Ontario, the base personal tax rate is 29%, where corporate tax rate sits at around 13%. Since personal tax and corporate tax are filed separately, as long as the realtor keeps revenues within the corporation, there is the opportunity to save a significant amount of taxable income.
To learn more about how you can benefit from these, a professional accountant or tax preparer would be your best resource.
What should I keep in mind before incorporating?
Before registering your Personal Real Estate Corporation, there are a few things you will want to keep in mind. The cost for incorporating is higher than registering as a small business but, as outlined above, there are a number of tax advantages that can be accessed. However, as a corporation is considered a separate entity, it would require a separate tax filing from your own personal taxes. This may entail the need to hire an accountant, which would have additional fees and paperwork associated.
Incorporating may also bring along with it additional paperwork, so keeping an organized Minute Book with important documents, minutes from meetings and other information is essential. It may be necessary to hire qualified chartered professional accountants to help keep organized and prepare corporate tax returns for filing.
What do you need to create a Personal Real Estate Corporation?
When it’s time to register your Personal Real Estate Corporation, there are things you’ll need to provide. Some of these items are the same as regular business corporations, however, some are specific to Personal Real Estate Corporations and should be confirmed by OREA before finalizing the incorporation documents.
Name – Personal Real Estate Corporations have specific naming guidelines, outlined by RECO. If the name of the corporation does not fit within these guidelines, the business will not be approved by the governing body. Before completing your Articles of Incorporation, it’s recommended that you first send your proposed PREC name to RECO to confirm that it meets the rules they have set out. You can send the legal name of your PREC to email@example.com before setting it up.
Address – Ontario Corporations are required to list an address in Ontario as their registered head office address. Addresses of the directors and the mailing address do not have to be within the Province.
Names and address of directors – A PREC can only have one sole Director, who is a realtor registered with RECO. This individual also acts as President and controlling shareholder of all equity shares.
Share Structure – There are certain sections of the corporate share structure that may require the inclusion of certain wording, in the case of PREC. These are typically for Section 5, which specifies any restrictions on business activity, and Section 8, which details the issue, transfer and ownership of shares. The share structure of a corporation is specified as follows:
Section 5: Restrictions, if any, on business the corporation may carry on or powers the corporation may exercise
Section 6: The classes and any maximum number of shares that the corporation is authorized to issue
Section 7 Rights, privileges, restrictions and conditions (if any) attaching to each class of shares and directors’ authority with respect to any class of shares which may be issued in series
Section 8 The issue, transfer of ownership of shares is/is not restricted and the restrictions (if any)
Section 9 Other provisions, if any
The governing body would be able to provide the exact wording they want to see in each of these sections. The director must be the sole controlling shareholder of any voting shares. If non-voting shares are available, these can only be owned by family members of the director. We assist you in determining and providing the details required to successfully prepare your corporation, according to the regulations required by RECO.
As part of Ontario Business Central’s commitment to you, we provide the Articles of Incorporation documents to you in draft. You can provide this draft to RECO to ensure your documentation is fully within their requirements and gain their approval prior to the completion of the incorporation with the Province of Ontario.
What are the rules for my Personal Real Estate Corporation?
There are certain rules and conditions set out by RECO for the criteria of what each Personal Real Estate Corporation must have. It’s recommended you consult with a corporate lawyer or with RECO directly for the specific requirements. You can find a checklist of these criteria here:
OREA has also provided helpful information for realtors looking to incorporate. They help to answer your questions through videos, Powerpoint presentations and a number of other resources:
How long does it take to receive my Articles of Incorporation?
Ontario Business Central provides one of the fastest and easiest ways for real estate professionals to complete their Personal Real Estate Corporation. We provide same day service to provide you with your completed Articles, if your order is received before 3pm ETA Monday through Friday. A Rush option is also available, with a turnaround time of 3 hours.
When you receive a draft copy of your Articles, you will be able to review the documents and provide them to your governing body or lawyer. Once you have approved the draft, your completed documents are sent electronically.
There may be many benefits to registering a Personal Real Estate Corporation. Each circumstance will be different, so we recommend speaking to a lawyer or accountant to see what path you should take. And, when you’re ready to incorporate, we can help get things completed quickly!
At Ontario Business Central, our commitment is to assisting entrepreneurs as they build and grow their successful businesses. If you have any questions about how to take the first steps to start, please reach out to our helpful and knowledgeable staff.
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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.