What is a personal real estate corporation?
A personal real estate corporation is a type of corporation wherein real estate brokers and agents can provide their services, in order to avail themselves of the advantages of that corporations have such as tax planning.
What are the tax advantages of a personal real estate corporation?
Having a personal real estate corporation allows you to defer paying income tax to a later date and pay less tax on your commissions. Without a PREC, agents and brokers pay tax at their personal rate on the commissions they earn, which can be as high as 53.5% at the top marginal rate. If paid to the PREC instead, the commission will be taxed at the corporate rate of 12.2% on the first $500,000, assuming the PREC is eligible for the small business rate.
What are the restrictions placed on a personal real estate corporation?
The PREC is not restricted to the provision of real estate services only despite RECO’s initial intention. At the time when the regulations were enacted into the law, they have removed this prohibition allowing the PREC to engage in any business activity.
The single restriction under O.Reg 536/20 to the Real Estate and Business Brokers Act (REBBA) 2002, is that the corporation may not engage in the ‘business of trading in real estate’. This provision should be reflected in Section 5 of the Articles of Incorporation. The PREC may engage in any other activity or service including any other non-real estate business. As well, you are permitted to invest your funds inside your PREC within a portfolio at any financial institution and invest your funds.
Does a PREC protect real estate and agents from personal liability?
A PREC does not provide protection from personal liability. While the PREC may receive commissions earned by the agent or broker, it is not a vehicle through which he or she provides services. Brokers and agents are liable for the services provided and must meet all obligations and responsibilities to clients.
