Personal Real Estate Corporation (PREC) Ontario

As of October 1, 2020, Ontario real estate agents are allowed to incorporate Personal Real Estate Corporations. Ontario Personal Real Estate Corporation also know as “PREC”.

Ontario real estate market is booming da by day. Real estate professionals (brokers and agents) in Ontario’s competitive real estate market are constantly looking for new and creative ways to grow their companies and improve their money management. That finally becomes a reality.

At Business Ontario, our corporates experts will help you incorporate Ontario Personal Real Estate Corporation following the guidelines, checklist, regulations, and RECO restrictions. 

If you’re a real estate agent in Ontario and are thinking to incorporate your practice under PREC, this article will cover the basics of your inquiry and give your answer what you need to know. The goal of this article is to help real estate professionals understand the important advantages, disadvantages, restrictions and planning opportunities involved with incorporating an Ontario personal real estate corporation.

What is an Ontario Personal Real Estate Corporation (PREC)?

Ontario Personal Real Estate Corporation (PREC), is a legal entity, that allow realtors, real estate agents and brokers to incorporate a corporation under Ontario Business Corporations Act. This legislation was enacted in Ontario on October 1st, 2020.

The new legislation allowing real estate agents to incorporate and have the opportunity to take the benefits of owning a corporation. That gives them lower tax rate, the opportunity for tax deferral and income splitting, and deductions.

The controlling registrant (also known “controlling shareholders) must be an existing member of the Real Estate Council of Ontario (RECO) To incorporate an Ontario Personal Real Estate Corporation

Ontario Personal Real Estate Corporation (PREC)s come with specific ownership and operational requirements that ensure Relators or agent’s real estate practice remains compliant with regulations set by the Real Estate Council of Ontario (RECO).

Ontario Real Estate Association (OREA) has a list of PREC resources available to real estate professionals looking to start their own Personal Real Estate Corporation on their website. See their checklist here.

Ontario Personal Real Estate Corporation is not a professional corporation (Just like CPA, lawyers, dentists, Doctors and other professionals enjoy of having a professional corporation) under the Business Corporations Act.

Under which law an Ontario Personal Real Estate Corporation (PREC) is Incorporated?

The law under which a PREC is incorporated is the Ontario Business Corporations Act (OBCA). The PREC regulations themselves are outlined in a separate document called O. Reg. 536/20: PERSONAL REAL ESTATE CORPORATIONS, but the legal framework for creating the corporation falls under the OBCA.

Benefits of Incorporating an Ontario Personal Real Estate Corporation

There are several compelling advantages to incorporating a PREC:

• Tax Advantages: PREC income is taxed at a lower corporate rate compared to personal income tax rates. Corporate tax in Ontario is 11.5 per cent, which is lower than personal tax rates. Additionally, controlling shareholder can defer income by leaving it within the corporation and only paying taxes when he withdraws it as dividends.
• Limited Liability: A PREC is like a standard corporation that shields Realtors personal assets from business liabilities. If corporation faces a lawsuit, realtors personal belongings are protected.
• Income Splitting: In PREC family members can be non-voting, non-equity shareholders. That means dividend can be paid to family members. However, there are two exceptions set by TOSI rules. The exceptions to TOSI rules are:
  • If a real estate agent is over the age of 65 years (regardless of the age of their spouse)
  • If the spouse works over 20 hours per week at the business over the course of a year

If you or your spouse fall under one of these two exemptions, income splitting could be a major advantage of a PREC. That could make income splitting a benefit to incorporating a real estate practice in Ontario.

Disadvantages of Personal Real Estate Corporation:

• Ontario personal real estate corporation must have an article of incorporation that comply with the specific rules and regulations set by RECO, TOSI, and OREA. Hence, filing an article of corporation is complex and it is prepared by a corporate lawyer, the cost of incorporating for an Ontario personal real estate corporation is higher than a regular standard corporation.
• Before real estate agents were registered as a sole proprietor. Sole proprietorships are inexpensive and easy to set up. When operating a PREC, you need to spend more money annually on bookkeeping costs and accounting fees for the corporate filings. 

Requirements for Incorporating an Ontario PREC

RECO sets some specific criteria to incorporate an Ontario Personal Real Estate Corporation, these are :

• You must be a registered real estate salesperson or broker in Ontario.
• You must be the sole shareholder, director, and president of the PREC.
• You cannot operate another corporation simultaneously.
• You must get approved from your brokerage to incorporate Ontario Personal Real Estate Corporation

Differences Between a PREC and a Standard Corporation

While PRECs share some similarities with standard corporations, there are key differences:

• Ownership: Only Controlling shareholder operates and manage Ontario Personal Real Estate Corporation, while standard corporations can have multiple shareholders.
• Restrictions on Business Activities: A PREC can only conduct real estate activities, while standard corporations can conduct a broader range of businesses.
• Governance: A PREC requires you to be the sole director and president, whereas standard corporations allow more flexibility in leadership structure.

How Business Ontario Can Help You Register Your PREC

Business Ontario Corporate Services Inc. is the official intermediary of Services Ontario for registering corporations in Ontario. We offer a variety of services to help you incorporate your PREC efficiently, including:

• Online filing: Register your PREC electronically through our user-friendly online website.
• Incorporation packages: Choose from packages that include essential documents and filing fees.
• Name Reservation: Reserve your desired PREC name before officially registering.
• Post-incorporation services: Access ongoing support for filing annual returns and making corporate changes.

What is not a Personal Real Estate Corporation (PREC)?

A PREC cannot operate as a brokerage (e.g. advertise real estate listings), because a PREC is not a brokerage. A PREC cannot involve in the trading of real estate unless it is registered as a brokerage with Real Estate Council of Ontario (RECO).

What is the relationship between a PREC and a registrant’s obligations with respect to registering with RECO?

The PREC may not receive any compensation from a trade in real estate or trade in real estate unless its controlling shareholder is a Registrant with RECO under the Trust and Real Estate Services Act (“TRESA”). The PREC itself need not be a Registrant. However, the Registrant is required to provide appropriate notice to RECO if the Registrant utilizes an PREC.

If I am transferring to a different brokerage, do  i need to also transfer the license of my PREC?

A PREC does not need to be licensed. If you transfer to a different brokerage, your PREC will need to enter into a new agreement with the brokerage which meets the requirements found in TRESA and the regulations and gives appropriate notice. The current notice instructions have provided by RECO.

Can a real estate team form an Ontario personal real estate corporation?

No. A group of REALTORS® cannot together form and use a single PREC. A PREC must be a single-person corporation. The Regulations contemplate an individual REALTOR® forming his or her own PREC. Each PREC must be controlled only by one (1) individual REALTOR® and (with the exception of a REALTOR® who is also a family member and then only with respect to non-equity shares) you cannot make another REALTOR® a shareholder of your PREC.

Who can be a non-equity shareholder in PREC?

Members of controlling Shareholder’s (real estate agent) family, which includes your spouse, children, a trust for a minor child or children (under 18 years of age) and parents.  In addition, a trust for minor (under 18) children can own non-equity shares of a PREC.

What you need to know

This article is intended for general informational purposes only and should not be construed as offering legal, financial, or other professional advice. While the information presented is believed to be accurate and current, we do not guarantee its exactitude, and it should not be considered an exhaustive analysis of the covered topics. All expressed opinions reflect the authors’ judgments as of the publication date and are subject to change. Neither we. nor our affiliates expressly or implicitly endorse any third parties or their recommendations, opinions, information, products, or services. For specific situations, please consult a professional advisor.