Personal Real Estate Corporation, is it right for you?
Back in October 2020, a legislation was passed in Ontario to allow real estate agents and brokers to incorporate as a Personal Real Estate Corporations (PREC). It is now advantageous for Ontario Realtors, especially those in higher tax brackets to defer and potentially save on taxes.
Setting up a PREC in Ontario can have several advantages and disadvantages. Here are four pros and cons to consider:
1. Limited liability: One of the main benefits of incorporating a PREC is that it offers limited liability protection. As a separate legal entity, the corporation assumes the liability for its debts and obligations, protecting the personal assets of the shareholders (real estate agents) in most cases.
2. Tax advantages: Incorporating a PREC can provide potential tax advantages. It allows for income splitting, where profits can be distributed among family members who are shareholders, potentially reducing the overall tax burden. Additionally, corporations often have access to tax deductions and credits that are not available to individuals.
3. Professional image: Operating through a corporation can enhance your professional image in the real estate industry. Clients may perceive a corporation as more established and trustworthy, which can help attract more business opportunities.
4. Continuity and succession planning: A corporation can provide continuity and facilitate succession planning. Even if the real estate agent (shareholder) retires, becomes incapacitated, or passes away, the corporation can continue to operate with minimal disruption.
1. Incorporation costs: Setting up and maintaining a PREC involves expenses such as legal and accounting fees, registration costs, and ongoing compliance requirements. These costs can be higher than operating as a sole proprietorship or partnership.
2. Increased administrative burden: Running a corporation requires adherence to various administrative tasks, including bookkeeping, filing annual returns, maintaining corporate records, and conducting regular meetings. This can be time-consuming and may require additional resources or professional assistance.
3. Regulatory requirements: PRECs in Ontario are subject to specific regulations and governance rules imposed by the Real Estate and Business Brokers Act(REBBA). Compliance with these regulations can involve additional paperwork, licensing, and ongoing monitoring, which may increase administrative complexity.
4. Limited income tax advantages for certain expenses: While incorporating a PREC can provide tax advantages, it's important to note that certain expenses, such as personal real estate agent commissions and automobile expenses, may not be eligible for deductions or may have limitations. Consulting with a tax professional is crucial to understand the specifics and optimize your tax strategies.
It's worth noting that the pros and cons can vary depending on individual circumstances, business goals, and the real estate market. Consulting with legal, accounting, and tax professionals is highly recommended before deciding to set up a personal real estate corporation in Ontario. We at MMS Accounting can provide tailored advice based on your specific situation and objectives.
MMS Accounting provides personalized support, and ourteam will help you maximize tax-planning opportunities and ensure you arepaying the minimum amount of tax required by law.
For more information, please visit our websitewww.mmsaccounting.ca or schedule a consultation call by clicking here.
Please note that the above information is intended as a general source of information and should not be considered as specific source of tax, legal or financial advice. Tax rules and regulations are subject to change at any time, and we at MMS Accounting will help you navigate and fully benefit from any tax savings available to you.