Personal Real Estate Corporation (PREC) Ontario
As of October 1st, 2020, real estate agents in Ontario are now permitted to incorporate a Personal Real Estate Corporation (“PREC”). Real estate commissions can now be paid directly to the PREC and real estate agents may take advantage of the associate corporate tax and income planning benefits.
What is a Personal Real Estate Corporation (PREC)?
Simply put, a PREC is a corporation that receives commission earned by its controlling real estate agent. As with any corporations, commissions and other income earned by the PREC will be taxed at the corporate rate, including the ability to enjoy applicable small business deductions.
What is not a Personal Real Estate Corporation (PREC)?
A PREC is not a brokerage and cannot operate as a brokerage (e.g. advertise real estate listings) unless it is registered as a brokerage with RECO (Real Estate Council of Ontario). Similarly, a PREC cannot be named to suggest that it is involved in the trading of real estate unless it is registered as a brokerage with RECO.
What are the advantages to incorporating a PREC?
The most important benefit of Personal Real Estate Corporation (PREC) is the ability to defer taxes by earning income inside a PREC, which is taxed at a lower corporate rate than personal income rates.
To maximize those benefits, there three key things you will need to talk to a tax advisor about:
- Is incorporation right for you? Despite all of it’s benefits, it may not be for everyone.
- Carefully choose an ownership structure.
- Know the value of your assets.
Receiving advice from an tax expert is very important to:
- Help you decide whether incorporating a PREC is right for you.
- Help you plan out how to maximize the tax and income benefits of the PREC.
We frequently collaborate with local, regional and national accounting firms in Ontario and Canada, and we would be happy to make a referral for you.
Important Points To Know About PREC From a Real Estate Lawyer
1. PRECs cannot be used to trade in real estate (e.g. act, marketed, or be listed as a brokerage) unless the PREC is also registered as a brokerage. In practice, for tax, legal liability and administrative purposes, it is recommended to not use the same corporation as both brokerage and PREC. PRECs should not be named in a way to suggest that it is involved in the trading of real estate. Yes, PREC can be a simple numbered corporation!
i. The licenced realtor, or
ii. The spouse, child or parent of the licenced realtor, or
iii. By trustees in trust for the children of the licenced realtor.
4. Accordingly, it is important for the PREC to be incorporated after a careful tax planning exercise.
5. Incorporating a PREC allows a realtor to receive commissions from their brokerage to the PREC instead to the realtor personally.
Commissions received by the PREC will be taxed at the lower corporate rate compared to personal income rate.
Retaining excess income in the PREC allows the funds to be distributed to family members and/or invested for additional income until the earnings are drawn out under optimal tax circumstances.
Services We Provide For Realtors Incorporating PREC
S. 85 Roll Overs
For real estate agents with a lot of value in their existing business, an s. 85 roll over may be advantageous tax planning tool to transfer those assets to the PREC immediately after incorporation, so that gains may be deferred to be paid from the PREC instead of the sole proprietor.
Sometimes it’s beneficial to structure your holding of assets through various holding companies to deal with tax or legal liabilities. Along with the PREC, these corporations form a network of entities to help you manage and protect your assets, and at the same time assist with tax and succession planning.
Why You Should Work With Li Cheng For Your Personal Real Estate Corporation (PREC)
We collaborate well with tax advisors. Currently we are working with large and small accounting firms in Ontario, including:
– Grant Thornton LLP
– Durward Jones Barkwell & Company LLP
– BDO Canada
– CMB chartered accountants LLP
– Other accounting firms in Ontario
Responsive and personal. You will always be able to reach one of our team members.
Efficient and organized. We take care of all the small details so the process is stress free.
Multilingual. We are happy to provide our services in 4 languages: English, Mandarin, Cantonese and Arabic.
We are a reliable real estate lawyer who can incorporate your business.
Li Cheng, BA, JD, is an established real estate and business lawyer dedicated to guiding clients through the buying and selling process of real estate by providing reliable and expert services on business transactions.
We work with residential and commercial realtors on transactions for their clients, and also assist them with their own personal business transactions.
Incorporating a Personal Real Estate Corporation (PREC) is mainly a tax-planning strategy so if you haven’t already, we would advise you to obtain sound tax advice before incurring the costs and expenses of incorporation.
- New construction buy, sale, and assignments
- Mortgage transactions – new and refinanced mortgages
- Title transfers
- Corporate restructuring
- Joint venture, partnership, cost-sharing, shareholder and other commercial agreements
Please do not hesitate to contact us for assistance, questions or concerns regarding your individual legal needs.
Are you looking to incorporate your business? We offer one of the lowest flat rates for real estate lawyer fees in Southwestern Ontario.
Li Cheng, Real Estate Lawyer is assisting Tax Advisors and Real Estate Agents in:
- Hamilton: Ancaster, Dundas, Stoney Creek, Waterdown
- Halton: Burlington, Oakville, Milton
- Niagara: St. Catharines, Niagara Falls, Niagara Region
- Peel: Mississauga, Brampton
- We have office locations in Hamilton, Burlington, St. Catharines or Oakville, or we can do everything remotely and electronically (important during COVID)
Office Hours: Monday – Friday, 9 AM to 5 PM
Call us at 905-526-2127 or fill out this quick form for a free no obligation quote.
Hamilton Office: 10 George St, Suite 200
Burlington Office: 612 Brant Street
St. Catharines Office: 105 Merritt Street, Unit 101
Oakville Office, 1320 Cornwall Rd, Unit 203
- OREA (Ontario Real Estate Association), A Guide To Personal Real Estate Corporations
- RECO (Real Estate Council of Ontario), Personal Real Estate Corporations (PREC) and Advertising Terms
- Grant Thornton LLP, Setting up a PREC: What haven’t you considered?