Personal Real Estate Incorporation in Ontario

The main tax advantages of incorporating a PREC is that your remuneration will be paid to the corporation and not you personally for tax purposes.  And, your PREC will be eligible for the small business deduction on that income:

The small business deduction effectively lowers your corporate tax rate to about 12.5% on the first $500,000 that your company makes each year. It’s available on your active business income only (not income from passive investments) and is available to Canadian Controlled Private Companies (referred to as CCPC’s). Keep in mind that this is a deferral only meaning that once you pull money out of your company it becomes your personal income and is taxed at the marginal tax rates on your T1 return. To the extent that you can leave the earnings in the company, the deferral “lives” and you can use the additional money to grow and invest in your business.

There may be other tax benefits and you can always consult an accountant. If you need a referral to an accountant in your area, just let us know.

There are no restrictions on the business the PREC may carry on except the following: Your PREC cannot carry on the business of trading in real estate other than providing the services of its controlling shareholder to a brokerage, which it may do only if all of the criteria and conditions prescribed by the Real Estate and Business Brokers Act, 2002 (Ontario) and its regulations for personal real estate corporations are satisfied.

1. The corporation is incorporated or continued under the Ontario Business Corporations Act.
2. All of the equity shares of the corporation are owned, directly or indirectly, by the controlling shareholder.  The controlling shareholder is the individual employed by the brokerage as a salesperson. Directly or Indirectly means that holding companies meeting certain criteria may be used.
3. The sole director of the corporation is the controlling shareholder.
4. The president, being the sole officer of the corporation, is the controlling shareholder.
5. Each non-equity share of the corporation is owned by the controlling shareholder or a permitted family member or permitted trust.
6. The controlling shareholder controls the business and affairs of the corporation and no written agreement changes that.

The following conditions are prescribed for the purposes of  the Real Estate and Business Brokers Act, 2002.  These conditions are detailed and we are providing a brief summary only:
1. The controlling shareholder is employed by a brokerage to trade in real estate.
2. The PREC does not carry on the business of trading in real estate other than providing the services of its controlling shareholder to the brokerage.
3. You cannot represent to the public that you trade in real estate.
4. The PREC is not a brokerage.
5. Only the brokerage pays the PREC for trading in real estate, no other person.
6. The PREC does not hold funds in trust in connection with a real estate deal.
7. There is a written agreement between the PREC, the controlling shareholder and the brokerage governing the relationship between the brokerage and the corporation and its controlling shareholder and setting out certain specified matters such non-obstruction, cooperation and assistance.

Speak to Your Accountant! There may be tax issues to consider in moving to a PREC. You may need to transfer the goodwill of your business to the PREC on a tax deferred basis by doing a Section 85 rollover.  Ask your accountant about whether a Section 85 Rollover would be advisable in your circumstances. Our package does not include the rollover paperwork, however we can certainly help if this is required. Your accountant will file the election form with CRA when required.

For Ontario corporations, the entire process can be completed within 2-3 business hours. That’s because the incorporation documents are filed automatically.