As of October 1, 2020, pursuant to the Trust in Real Estate Services Act, PRECs are permitted to be incorporated in the Province of Ontario. This gives realtors the opportunity to gain some of the many benefits of incorporating a business.
There are a number of criteria for a PREC, including but not limited to:
- All equity shares being owned legally and beneficially by the controlling shareholder (the broker or real estate agent);
- Only one director, who must also be the controlling shareholder;
- The corporation must have a single officer, with the title of president who is the controlling shareholder; and,
- Non-equity shares may be issued to family members of the controlling shareholder, or trustees for one or more of the controlling shareholders’ children.
Real Estate Agents and Brokers may now be able to avail themselves of some tax planning benefits of PRECs, including claiming allowable deductions, deferring taxes by not withdrawing all profit out of the PREC, or income splitting. There may also be insurance benefits to incorporating a PREC.
While there are costs associated with incorporating a PREC, including the legal fees associated with doing so and ongoing accounting fees, incorporating a PREC may be in an agent or brokers’ best interest long term.
It is important those interested in incorporating a PREC get advice from an experienced lawyer as there are a number of technical drafting requirements to adhere to the legislation.
If you wish to discuss incorporating a PREC in Ontario, do not hesitate to reach out to our firm for a consultation.