A personal real estate corporation, or PREC, allows a real estate agent to earn their business income through a corporation. Several o provinces, including British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia and, most recently, Ontario, allow PRECs.
Several other professionals in Ontario, like doctors, dentists, lawyers, accountants, social workers, engineers and architects, can also establish professional corporations.
A PREC should not be confused with a corporation set up by a real estate investor to own real estate. A personal real estate corporation is only for a real estate agent.
Real estate investors may not benefit from setting up a corporation to hold their real estate investments. An example of when incorporation makes sense is if someone has an existing corporation with accumulated savings they want to invest in real estate. Or an investor who wants to buy and sell real estate—flipping properties—may benefit from a lower tax rate on this corporate business income. Some other scenarios may include investing in commercial real estate or establishing a not-for-profit corporation as part of a family cottage succession plan. I have written recently aboutwhether you should buy real estate through a corporation.
Tax deferral, not tax savings
Getting back to PRECs, whether a realtor should incorporate depends on their circumstances.
One of the primary benefits to incorporation for a realtor, or anyone else, is the ability to defer income tax. The tax rate on small business income up to $500,000 in Ontario is 12.2%, and comparable in other provinces. Profit left in a PREC generally qualifies for this low rate of tax. By comparison, personally earned income at $50,000 in Ontario is taxed at 29.65%; at $100,000, it’s 43.41%; $150,000 at 44.97%; $200,000 at 48.19%; and over $220,000 at 53.53%.
So, for a high-income Ontario realtor, incorporation could result in tax deferral of up to 41.33%, based on the top personal rate of 53.53% less the corporate small business rate of 12.2%. Note that I use the term tax deferral, not savings, as eventually personal tax becomes payable to withdraw accumulated corporate savings. After-tax profits in a corporation can be paid out as a dividend at rates ranging from 0% up to 47.74%, depending on the recipient’s other income for the year.
Income splitting with family members
Ontario realtors can name family members as shareholders of their PREC as well, but the realtor must own all voting shares of the company. Non-voting shares can be issued to others, and dividends can be paid to them. However, under Tax on Split Income (TOSI) rules that have applied to all Canadian private corporations since 2018, most dividends paid to family members will be considered split income and taxable at the top tax rate, negating the income-splitting benefits.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
