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647.812.8462

  • ABOUT
  • WHAT WE DO
    • REAL ESTATE
    • WILLS & ESTATES
    • IMMIGRATION
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    • BUSINESS
    • NOTARY SERVICES
  • LEGAL FEES
  • BLOG
  • CONTACT
logologo

647.812.8462

  • ABOUT
  • WHAT WE DO
    • REAL ESTATE
    • WILLS & ESTATES
    • IMMIGRATION
    • FAMILY LAW
    • BUSINESS
    • NOTARY SERVICES
  • LEGAL FEES
  • BLOG
  • CONTACT
by Monica Beffa
BLOG, Real EstateOctober 6, 20200 comments

INCORPORATING A PERSONAL REAL ESTATE CORPORATION OR “PREC”

 

A PERSONAL REAL ESTATE CORPORATION (“PREC”) gives Real Estate Agents (“Realtors”) the ability to utilize the benefits of incorporation.  Recently, Bill 104, the Tax Fairness for Realtors Act, has been passed to permit a PREC to be registered as a broker or salesperson.

A PREC can be considered a broker or salesperson provided that the owner of the PREC’s voting shares has the prescribed qualifications to be registered as a broker. Besides, the PREC must be employed by a brokerage to trade in real estate.

A PREC must satisfy the following conditions:

  1. A PREC must be incorporated under the Ontario legislation and must meet all the requirements of an Ontario business.
  2. The Realtor must own all of the voting shares in the PREC and be the only director and officer of the PREC;
  3. All PREC non-voting shares, if any, must be owned Realtors’ family members (spouse, parent, child);
  4. The PREC name must include “Personal Real Estate Corporation”;
  5. The PREC may only carry on business in the profession of real estate trading.
  6. The PREC should register for an HST account with CRA after formed.  The Realtors’ current HST accounts do not transfer.

THE PRO AND CONS OF INCORPORATING A PREC

PRO CONS  
BETTER TAX RATES   In Ontario, the small business deduction allows up to $500,000 of real estate business income to be taxed at the lowest corporate tax rate of 12.2%, and 26.5% above that amount. PRECs would give real estate agents access to this lower tax rate. By contrast, the personal income tax rate is 53.53%.   This will maximize Realtors’ income by realizing significant savings by paying less income tax.   ADMINISTRATION BURDEN   The main disadvantage of incorporation is the administration of the corporation.   The corporation requires legal and tax filings each year to remain in good steading with the authorities. This requires attention and is a time commitment for the Realtors.  
TAX DEFERRAL   A PREC will allow the Realtors to leave a portion of their profits in their PREC, thereby allowing Realtors to defer payment of taxes on such a portion of income until the money is withdrawn by the Realtors from the PREC.     OPERATING COSTS   INCORPORATION COSTS Realtors will also need to incur legal costs to incorporate the business and prepare the annual minutes and other filings required by the legislation   ONGOING COSTS   There are annual legal filing fees to be paid to the lawyer as well as fees to have an accountant file the annual corporate tax return.   BEFFA LAW can help you with the incorporation.  
TAX SAVINGS THROUGH INCOME SPLITTING   The PREC may employ and pay salaries to family members (spouse, partner, or child) for their services. The PREC may pay dividends to the family members. Income earned by family members may be taxable at lower individual rates, which would result in a reduced overall family income tax bill.   LOSSES MORE DIFFICULT TO USE   When a Realtor operates a real estate business as a sole proprietor and incurs a loss, the Realtor can deduct that loss against other personal income.    If a Realtor operates a corporation, the loss can be applied to the income of the corporation only. 
ESTATE & RETIREMENT PLANNING   Realtors can use the income tax deferral to plan for retirement.  They can use excess funds in the corporation to purchase rental properties, investments, life insurance, or an Individual Pension Plan. 

BEFFA LAW can help you draft a secondary will that deals with just your ownership in your corporation. 
PAY MORE TAXES   In some circumstances, operating a business through a corporation could mean Realtors could pay more taxes than if operating as a proprietorship.   This may occur when the small business deduction is not available to the corporation.  
CANADA PENSION PLAN   If Realtors are self-employed and have business income at or above $58,700 in 2020, they pay CPP of almost $5,796.    If Realtors transfer their business to a corporation and begin paying themselves dividends they could eliminate this annual cost. MAINTENANCE   Failure to comply with the filing requirements of the Ontario legislation may result in dissolving the PREC, at which point the subject PREC must immediately cease to exist.   Moreover, complying with Ontario laws on the maintenance of corporate minute books is necessary to avoid countless problems.   BEFFA LAW can help you with the annual legal filings.
DEDUCTIONS FOR BUSINESS EXPENSES   Deductible business expenses are not limited to the amount of commission earned or the other limitations imposed on sale expenses of commissioned employees. The PREC’s income for tax purposes is the profit, i.e. the sales commissions less reasonable business expenses.    
LIFETIME CAPITAL GAIN EXEMPTION   The LCGE allows a person who earns significant income from the sale of a small business corporation to deduct a significant amount, resulting in considerable tax savings. If Realtors want to take advantage of the lifetime capital gains exemption, the PREC needs to qualify as a qualified small business corporation.    
LIMITED LIABILITY   Operating your business through a corporation provides security against personal liability.   It is more difficult for a creditor to go after the shareholder’s personal assets if the business defaults on its debts. However, the directors are still liable in some cases.   STILL LIABILITY   By operating out of a PREC, Realtors will remain liable for services to clients and will be required to meet all associated obligations and responsibilities. If the PREC commits professional misconduct, the RECO may discipline the principal Realtor and the PREC by way of suspensions, cancellations, or restrictions on either licence.

While Bill 104 has the potential to provide the Realtors with significant tax-saving opportunities, there are numerous financial considerations that Realtors will need to consider before choosing to incorporate a PREC.

The Realtors who are contemplating switching to a PREC should seek professional legal advice.

 

 

Contact Us for more information about the Fees and the incorporation process.

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Participation constitutes the entrant’s full and unconditional agreement to and acceptance of these Official Rules. Beffa Law’s 12 Days of Christmas giveaway submission period commences at 7:00 a.m. EST on December 12, 2022, and ends at 11:59 p.m. EST on December 22, 2022, with the final winner announced on December 24, 2022. The contest is sponsored by Beffa Law.

  1. Eligibility: Beffa Law’s 12 Days of Christmas giveaway is open only to legal residents of Ontario who are 18 years of age or older. Entrants must also be Canadian citizens or Permanent Residents who reside in Ontario at the time of entry. Employees, contractors, directors, and officers of Beffa Law and its respective affiliated companies, distributors, licensees, and the advertising, fulfillment, judging, and promotion agencies involved in the development and administration of this promotion and their immediate family members and those living in the same households of each are not eligible to enter the contest.
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REFINANCE
  • Review mortgage instructions for refinancing.
  • Conduct and review title searches for any defects in the title.
  • Conduct and review writ searches and execution searches.
  • Secure title insurance and all correspondence with the title insurance company.
  • Review mortgage instructions.
  • Draft all mortgage documents
  • Register mortgage documents.
  • Extensive correspondence with the lenders and banks.
  • Receive mortgage funds.
  • Review certificate of insurance.
  • Meet with client to explain and sign all legal documents
  • Close the refinance transaction and securely transfer the funds
  • Register mortgage on title
  • Open the refinance file and access to client portal
  • Report to client, lender & realtor about closing
  • One in person appointment or remote signing on zoom
  • After office hours appointment.

CLOSING COSTS &  NOT INCLUDED IN FEES;

  • Title Insurance (as per Invoice)
  • Registration Costs/ per Mortgage;
  • Software Charges;
  • Flat disbursements cost, title searches, writ searches, execution searches, bank charges, courier charges etc.

CALCULATE YOUR COSTS

OCCUPANCY
  • Acting for you in matters relating to your purchase of the property
  • Review the Agreement of Purchase and Sale
  • Conduct and review title searches for any defects in the title Submit requisitions on the title and review the responses
  • Search for arrears of taxes and obtaining a certificate
  • Confirm that utilities were in satisfactory standing and arranging for meters be read
  • Search for executions
  • Examine the draft deed
  • Review the statement of adjustments
  • Reviewing the documentation provided by the builder including warranties, declarations and vendor’s and purchaser’s undertakings, and verifying enrolment with Tarion Warranty Corporation
  • Draft documents and statements in accordance with Land Transfer Tax Act
  • Correspondence with the Condominium Corporation and obtain a Status Certificate and Certificate of Insurance and review the same
  • Meet with client to explain and sign all legal documents
  • One in person appointment or remote signing on zoom
  • Close the transaction and securely transfer funds
  • Register transfer

OTHER CLOSING COSTS

  • Software charges ;
  • Disbursements includes one title search

CALCULATE YOUR COSTS

TITLE TRANSFER
  • Complete the required documents and gather the supporting documents
  • Obtain appropriate legal advice for the tax and other implications of the title transfer
  • Review the forms for completeness and accuracy
  • Perform title searches
  • Obtain title insurance
  • Update the contents and fire insurance policy
  • Update ownership records in the utility bills
  • Advise current mortgage lender of the title changes
  • Get the title change documents registered and report them to the clients
  • Send information to the city’s tax department and condo property management of changes in ownership

CLOSING COSTS NOT INCLUDED IN FEES

  • Software charges
  • Flat disbursements cost – includes one title search
  • Registration Fee

CALCULATE YOUR COSTS

SALE
  • Review mortgage instructions for refinancing.
  • Conduct and review title searches for any defects in the title.
  • Conduct and review writ searches and execution searches.
  • Secure title insurance and all correspondence with the title insurance company.
  • Review mortgage instructions.
  • Draft all mortgage documents
  • Register mortgage documents.
  • Extensive correspondence with the lenders and banks.
  • Receive mortgage funds.
  • Review certificate of insurance.
  • Meet with client to explain and sign all legal documents
  • Close the refinance transaction and securely transfer the funds
  • Register mortgage on title
  • Open the refinance file and access to client portal
  • Report to client, lender & realtor about closing
  • One in person appointment or remote signing on zoom
  • After office hours appointment.

OTHER CLOSING COSTS 

  • Title Insurance (as per Invoice)
  • Registration Costs/ per Mortgage
  • One Mortgage payout with a Tier 1 bank
  • Software & office disbursements
  • Flat disbursements cost includes one title search

CALCULATE YOUR COSTS

PURCHASE
  • Review the Agreement of Purchase and Sale.
  • Conduct and review title searches for any defects in the title.
  • Submit requisitions on the title and review the responses.
  • Conduct and review writ and execution searches.
  • Secure title insurance and all correspondence with the title insurance company.
  • Examine draft transfer deeds and draft closing documents.
  • Review the statement of adjustments.
  • Draft documents and statements in accordance with Land Transfer Tax Act.
  • Draft documents to apply for first-time home buyer rebate for the client.
  • Correspondence with the lender and banks.
  • Review the certificate of insurance.
  • Meet with client to explain and sign all legal documents
  • Close the purchase transaction and securely transfer funds
  • Register transfer
  • Report to client, lender & realtor about closing
  • One in person appointment or remote signing on zoom
  • After office hours appointment

OTHER CLOSING COSTS

  • Land Transfer Tax
  • Title Insurance (as per invoice)
  • One Mortgage with a Canadian Tier 1 bank
  • Government Registration fees
  • Teranet and search fees;
  • Software fee and other office disbursements

CALCULATE YOUR COSTS

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