On October 1st, 2020, the Provincial government brought forward Ontario’s new rules for forming Personal Real Estate Corporations (“PRECs”). PRECs allow REALTORS® to access the business advantages of incorporation, including tax and income planning benefits.
Our Provincial Real Estate Association, OREA, has created materials on it to support Members who are interested in forming a PREC. Please review the materials below for more information and a comprehensive guide as to what a PREC is:
IMPORTANT: To decide if forming a PREC is the right choice for you and your business, we you to seek advice from your lawyer, accountant, and financial advisor. OMDREB, OREA, or any other Association cannot provide business advice or guidance to you.
REALTORS® in Ontario now have the opportunity to incorporate with the passing of Bill 145, Trust in Real Estate Services Act, 2020, and can now earn an income through a Personal Real Estate Corporation (PREC). With the new rules and regulations in place, REALTORS® can benefit from a PREC which allows them to defer personal tax and pay a corporate tax rate instead. With fewer taxes, you retain more of your income.
Tax rates in Ontario reach as high 53.53% for an income that is above $220,000. With a PREC, you will now have the means to access the Ontario small business tax rate, which is 13.5% on the first $500,000. Any income that is above the $500,000 mark will be taxed at a rate of 26.5%. Going down this path can give you a tax reduction of up to 38.53%.
Another benefit of incorporating is tax deferral opportunity. REALTORS® who are incorporated can now defer their tax payments by leaving a share of their earnings in the corporation and only being taxed once those funds have been withdrawn.
Under a PREC, income splitting is also possible, and is beneficial due to the additional tax savings it allows. Income splitting is a process within a corporation that allows the corporation to pay a fair salary to a family member. By utilizing family members such as your spouse, parents or children, in the lower tax brackets, you can bring down your family’s overall tax burden by income splitting using your corporation.
