Benefits of Incorporating a Personal Real Estate Corporation (PREC)
January 28, 2021 | Written by: Sohail Afzal
A Personal Real Estate Corporation, or PREC, allows a real estate agent to earn their business income through a corporation. This corporation is incorporated under the Ontario Business Corporations Act. The corporation has one single controlling shareholder (a broker or salesperson who owns ALL the equity shares). Following are some of the important benefits of incorporating a Personal Real Estate Corporation:
One of the most important benefits of incorporating a PREC is tax deferral. In PREC, you can leave your business income with your corporation for as long as you want and this can defer your tax obligations until your PREC pays you a salary or dividend. You can defer your personal taxes until you withdraw business income like salary or dividend from your PREC.
Income splitting is another important benefit of incorporating a PREC. With a PREC, you can use your business income to achieve certain tax benefits by paying dividends to your family members who are actively involved in your PREC business. You can use the tax dividend credit by way of transferring the dividend to a high-income spouse as income splitting. In such a case, the lower-income spouse can transfer the dividend to the higher-income spouse, who may be able to use the dividend tax credit and save tax.
Flexibility of Remuneration
Incorporating a PREC can give REALTORS access to different types of payment options, including salary, dividends, and bonuses. You can withdraw business income from PREC whenever and wherever you want as it gives you full flexibility of remuneration.
Lifetime Capital Gains Exemption
You can enjoy a significant tax break on the capital gains you realize on the disposition of certain private corporation shares. Each individual resident in Canada may claim a Lifetime Capital Gain Exemption (LCGE) to protect capital gains on the disposition of qualified small business corporation (QSBC) shares. You need to consult your tax advisor to ensure your PREC is structured in such a way that you can take this lifetime capital gains exemption.
You can also enjoy a tax reduction by incurring certain business-related expenses that are deductible under PREC. If you personally incur those expenses, it might not be fully deductible and leave you paying high taxes. If these expenses are incurred through the PREC, your tax liability can be reduced.
If you are in a real estate business and decide to operate your business through a PREC, you will remain personally liable for the services you provide to Ontario’s consumers and are required to meet all professional obligations and responsibilities outlined by the Real Estate Council of Ontario. If you need any help in preparing articles of incorporation for your PREC and need any help in understanding PREC conditions, restrictions, provisions, and exemption, please do not hesitate to reach out to us at GTA Accounting.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.