An update on Personal Real Estate Corporations (PREC)

On March 4, 2020 Bill 145 An Act to amend the Real Estate and Business Brokers Act, 2002 received Royal Assent in the Legislative Assembly of Ontario. The bill amended the Real Estate and Business Brokers Act, 2002, including a name change to the Act which is now known as the Trust in Real Estate Services Act, 2002, the “Act”.

On October 1, 2020 the first phase of the regulatory changes was approved. This phase allows real estate professionals to incorporate and be paid through a Personal Real Estate Corporation “PREC”. The PREC and its prescribed members are able to trade in real estate only to the extent of providing the services of its controlling individual to a brokerage without registering under the Act, subject to prescribed conditions.

Incorporation offers several benefits to real estate agents, such as the availability of a tax deferral, flexibility with remuneration, and greater options when it comes to estate and retirement planning.

The potential for a deferral of tax in a corporation is significant due to the difference in applicable tax rates. For real estate professionals in the top personal tax bracket for 2020 (53.53%) a deferral of over 40% is possible due to the 12.2% corporate tax rate on the first $500,000 of income in the corporation.

If you would like our assistance in deciding whether you would benefit from incorporating your real estate practice, be sure to contact us!

Receive tax alerts, latest news and events delivered to your inbox.