A Personal Real Estate Corporation (“PREC”) allows a real estate agent to take advantage of the benefits of incorporating a real estate business. It is great news for realtors as it allows real estate agents in higher tax brackets to defer taxes and save on taxes. Much like doctors, lawyers, engineers, and accountants it is now possible for real estate agents to incorporate their business. If a real estate agent incorporates their business, they will be entitled to the same advantages as other professionals.
For a real estate agent to incorporate a Personal Real Estate Corporation, according to the newly announced regulations, the following is required:
What is a Personal Real Estate Corporation (PREC)?
A PREC is a real estate corporation that allows a real estate agent to incorporate their business. The benefits of incorporating include limiting liability, reducing corporate income taxes and potential capital gains on the sale of a real estate practice.
What tax savings are available for a Personal Real Estate Corporation (PREC)?
By incorporating, numerous tax advantages become available for a real estate agent in Ontario. Unless incorporated, a real estate agent likely reports income as a sole proprietor. This means that the real estate agent pays taxes on the full amount earned without deferral, separation or the ability to split with family members. By incorporating a Personal Real Estate Corporation, a real estate agent will be able to claim deductions and defer income taxes and split income with family members. Most importantly, income taxes will be payable at a corporate level as opposed to a personal level.
In short, the real estate agent will be able to pay personal taxes on only the amounts withdrawn personally from the Personal Real Estate Corporation. For example, if a real estate agent earns $250,000 in commission they will pay income taxes on the entire amount minus applicable deductions. With a Personal Real Estate Corporation, if a real estate agent makes $250,000 in commission, they will pay corporate taxes and then personal taxes at their personal tax rate only to the extent that they withdraw funds from the Personal Real Estate Corporation for their own personal use.
For high income earners who do not need their entire earnings immediately, there is an opportunity to defer personal income, and therefore personal taxes, to a later date in the future. This is particularly beneficial for a realtor whose earnings fluctuate significantly year over year depending on the timing of their closings.
What are the Advantages of a Real Estate Personal Corporation?
Incorporating a real estate business has many advantages:
What are the Disadvantages of a Real Estate Personal Corporation?
In most cases, the advantages of incorporating a Real Estate Personal Corporation greatly outweigh the disadvantages. Real estate agents have been pushing to be allowed to incorporate for years. Now that it is available, it is time to take advantage of the changes to the regulations that allow for a PREC Personal Real Estate Corporation. Do you have questions about a PREC Personal Real Estate Corporation? Feel free to email us at firstname.lastname@example.org or give us a call at 613-440-4888. We would be happy to offer any real estate agent a complimentary initial consult.