Building a Personal Real Estate Corporation with Grechi Carter
THE BENEFITS OF A PREC.
The recent passing of Bill 104 allows realtors to incorporate personal real estate corporations (a “PREC”). What’s the benefit for realtors? Unlike some other professions such as lawyers, realtors are not permitted to conduct their professional duties through the PREC in order to shield themselves from liability towards clients. The legislation is clear that agents cannot advertise or communicate to the public that the PREC itself trades in real estate. Clients will continue hiring the brokerage and sales persons in their personal capacity.
The primary benefit of the PREC is in the advantageous tax benefits that can apply. Agents can direct their commissions and any income directly to the PREC and therefore not pay personal income taxes except to any salary or dividends drawn from the PREC. For realtors earning in the top income brackets the savings can be substantial (the highest personal tax bracket is over 50% versus the Ontario small business tax rate of 13.5% on the first $500,000 of income earned by the PREC).
Additional tax advantages are the opportunity to split income with family members and future tax and estate planning opportunities. It’s important to discuss these advantages and opportunities with your accountant to determine the best structure for the PREC, who receives shares and how income directed into the PREC will be split and or retained in the PREC.
RULES AND RESTRICTIONS
A PREC has specific activities and restrictions that must be followed including:
A single controlling individual must own (legally and beneficially) all the equity shares (common typically voting shares)
This means that the REBBA registrant must be the sole person entitled to the assets of the PREC in the event of any future dissolution
The controlling individual must be a registered real estate broker or agent
The controlling individual must be the sole director and officer of the corporation
The family members, including spouse, of the controlling individual may hold non-equity shares (dividend paying shares), but cannot hold equity shares
The PREC itself cannot buy or sell property
No one can advertise or communicate to the public that the PREC trades in real estate or offers realtor services
Permitted activities of the PREC are not expressly set out in the legislation but do not appear to be restricted except by any other applicable laws. Therefore, a PREC could engage in numerous investment activities and businesses such as holding rental properties, owning or developing real estate etc.
A PREC is not a registrant, is not permitted to engage in real estate services and will not be covered by the registrant’s insurance. The registrant’s insurance is not otherwise affected by the use of a PREC.
Base price for a simple incorporation where one Agent is the Sole Shareholder
Each Additonal Family Member
For each additional family member holding none-equity shares - discounted to
Each Additonal Minority
For each additional minority (under 18 years old) family member holding none-equity shares
*All of the above is subject to HST and approximately $460 in governement registraition costs