What Real Estate Professionals Need To Know About Incorporating – Real Estate and Construction – Canada – Mondaq News Alerts

On March 4, 2020, Bill 145 received royal
assent and amended and replaced the Real Estate and Business Brokers
Act with the Trust in Real Estate Services
Act (TRESA). The most significant amendment
ushered in under TRESA is that real estate professionals are now
permitted to carry on their business through their own Personal
Real Estate Corporations, which presents some advantageous
opportunities.

As of October 1, 2020, a real estate professional can receive
remuneration from a brokerage directly to a corporation controlled
by them, which has some significant tax advantages versus receiving
remuneration directly as an individual. As a real estate
professional it is important to understand the rules and conditions
when incorporating a Personal Real Estate Corporation and how it
might impact your business.

1. Incorporation

A Personal Real Estate Corporation (PREC) must be incorporated
in Ontario or continued into Ontario. It can be an existing
corporation that you ‘convert’ into a PREC. Unlike other
professional’s corporations, there are no restrictions in the
corporation’s articles that restrict the business that the PREC
can carry on. In addition, again, unlike other professional’s
corporations, there are no naming restrictions. The corporation
does not have to contain the words ‘Personal Real Estate
Corporation’ and does not have to be limited to only ‘the
sale of real estate’. The foregoing lack of restrictions allows
for maximum flexibility for real estate professionals and how they
use their corporations.

2. Registration

One registrant – One corporation. The PREC can only have one
registrant holding all of the voting shares of the corporation and
all of the officer and director positions. This is fundamental to a
PREC because it allows the PREC to avoid the extra step of applying
to the Real
Estate Council of Ontario (RECO) to be its own registrant.

Other professionals must apply to have their professional
corporations registered and recognized by their governing bodies.
Not having to register a separate entity with RECO saves time and
money for the real estate professional. No application fee and no
renewal fees. All that is required is an email notice to RECO with
the name and address for service of the PREC.

3. Payment of Remuneration

There are several conditions that are required to be met in
order for a PREC to be exempt from registration with RECO and
therefore capable of receiving remuneration. A particularly
important one is a written agreement between the real estate
professional, the brokerage and the PREC. This agreement will
govern the relationship between the brokerage, the PREC and the
real estate professional and it must be in place prior to the
brokerage paying any remuneration to the professional. It will
contain language that requires the professional to certify that the
PREC is properly incorporated and organized, properly registered
with RECO and that it has met all the conditions for exemption.
Lastly, it will confirm that the brokerage is relying on the
accuracy of those statements to be able to pay remuneration
directly to the PREC.

After many years of hard work and lobbying by the Ontario Real Estate
Association (OREA) and others, the typical red tape that is
associated with the incorporation process for other professionals
has been avoided, making incorporation even more attractive for
real estate professionals.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.