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Personal Real Estate Corporations

Published on October 9, 2020

After a decade-long struggle, realtors in Ontario can finally incorporate effective October 1, 2020.  The new legislation basically puts realtors on equal footing with many other professionals like doctors and dentists, who have been taking advantage of the tax savings/deferrals for years.  Realtors who incorporate will be forming a Personal Real Estate Corporation (PREC). 

Like professional corporations, there are certain requirements that the realtor and PREC must meet/adhere to as laid out in the Trust in Real Estate Services Act (TRESA).  Notably, only licensed realtors can be voting/equity shareholders and directors/officers of the corporation. 

Family members can also be shareholders but they must be non-voting/non-equity shareholders.  In short, that means that the family members can receive dividends, subject to other tax restrictions.  Family members include your spouse, children and parents. 

Further, the realtor can also incorporate a holding company which can hold the shares of the PREC; however, the holding company share restrictions mirror that of the PREC.  Therefore, the realtor must own the equity/voting shares of the holding company.

It also seems that some other business and investing activities may be permitted within the PREC, including but not limited to investment/rental properties and other investing activities.

Recent restrictions imposed under the Income Tax Act with respect to income splitting, certain corporate structures and businesses with large investment income have made incorporation less attractive in certain circumstances.  That said, tax deferral/savings opportunities coupled with legal benefits of incorporating still exist.  We highly recommend that you discuss incorporating with your accountant and lawyer before proceeding.

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PREC Realtor