The Personal Real Estate Corporation – An Opportunity for Better Tax Planning

As you may have heard it, breakthrough legislation has been passed permitted real estate agents in Ontario to set up Personal Real Estate Corporations (PREC). Prior to this, real estate agents had to be paid commission income directly in their personal capacity and could not take advantage of the tax planning benefits afforded by corporate law. Recent legislation has amended this and afforded real estate agents many new opportunities, including the following.

Real estate agents can now be paid commission income through their PREC, giving them the option to keep the income within the PREC and therefore taxed solely at the corporate level. As you may know it, corporate tax rates are significantly lower than personal tax rates. In addition to this, real estate agents now have the ability to write off several expenses in their PREC, for example, travel fees to meet a client or a computer purchased to perform real estate services. Such write offs allow real estate agents to reduce their taxable income and therefore reduce their tax burden. This was not possible where commission is paid directly to the real estate agent at his or her personal capacity.

Real estate agents now have the ability to defer taxable income into the future. For instance, an agent that has earned commission income in excess of his or her needs may elect to leave the income within the corporation and he or she will only be responsible to pay personal income taxes upon the salary or dividends that he or she actually deducts from the corporation. One thing to note is that operating a PREC will require more administrative, accounting, and legal work that would otherwise not be involved in simply earning commission income at the personal level. Operating a corporation means you are required to file corporate taxes, you have to maintain a corporate minute book, you have to complete periodic corporate filings, and a host of other tasks.

Whether a PREC is right for you and the steps that are required to establish one should be discussed with a qualified lawyer. We at Falcon Law PC specialize in organizing new corporations and advising you on your rights as a corporate stakeholder. We look forward to helping you move forward in your real estate sales career. Call us now 1-877-892-7778 or email us at info@falconlawyers.ca.

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