Benefits to Incorporate a Personal Real Estate Corporation (“PREC”) in Ontario

The amendment to the Real Estate and Business Brokers Act (the “Act”) obtained Royal Assent on March 4, 2020, which means that Real Estate Professionals in Ontario are now able to incorporate and access numerous benefits which were not available in the past, including:

Lower Corporate Tax Rates: Real Estate Professionals (“REPS”) are taxed as high as 53.53% on all income over the $220,000.  By incorporating a PREC, the tax rate will be 12.20% for the first $500,000. This represents a 41.33% tax deferral opportunity, or a $41,330 tax dollar reduction for every $100,000 of profit retained in the corporation.

More Investment Funds & with compounded return: The deferred corporation tax can be used to fund investments, which will create a larger investment pool from annual tax deferrals. Invest this money and let compound growth build up funds for your retirement.

Income Splitting and Efficient Management of Realtor’s Personal Income Tax: To maximize after-tax dollars, Realtors can withdraw money from their PREC either by salary, dividends, or a combination of both.  Additional opportunities to maximize deductions and further defer personal income tax may also be available through a PREC.

Saving Probate Fees: Implementing a dual wills strategy may save approximately 1.5% in probate fees on the future fair market value of the PREC which translates into further tax savings for realtors.

Life Insurance owned by a Corporations – a Tax Efficient Strategy: Funding life insurance costs out of a PREC using ‘pre-tax’ dollars will save real estate professionals unnecessary taxes to pay for personal life insurance from after tax dollar.

Asset Protection and Limited Liability:  Incorporating a PREC provides the REP with personal protection from creditors and third parties (with the exception of professional liability as governed under RECO).

Why Wait?  Please talk to us to assess whether you should set up a corporation for your real estate business.

This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email us for further advice.