What is a Personal Real Estate Corporation (PREC)?
This article was originally published by The Hamilton Spectator.
Q: What is a Personal Real Estate Corporation (“PREC”) and what are the advantages for real estate professionals?
A: As of October 1, 2020, the Ontario Government introduced legislation permitting the formation of PRECs for real estate professionals, thereby allowing realtors to earn their business income through a corporation rather than personally.
Incorporating a PREC can have numerous advantages for real estate professionals, largely with respect to tax planning. The main benefits are lower tax rates and tax deferral, which can be helpful for those who earn more per year than what they require to live. PRECs provide the opportunity to defer income tax payable by not withdrawing all profit out of your corporation in the same year it was earned. Income tax would then be payable at a corporate rate on the funds left in the PREC, which is much lower, and only payable personally to the extent that funds are withdrawn from the PREC. This is also helpful as part of retirement planning, in that funds left in the PREC can be withdrawn during retirement at a lower tax rate. Further, an additional tax benefit for some realtors is that income splitting can be achieved with family members who are actively engaged in the business and thus, are permitted to own non-voting shares of the PREC.
Seeking professional advice regarding incorporating a PREC is highly recommend. Please feel free to contact us if a PREC might be beneficial for your business.
NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Ross & McBride professionals will be pleased to discuss resolutions to specific legal concerns you may have.
