Personal Real Estate Corporation (PREC) Services In Canada

The answer varies on several points. Here are three key reasons why business owners opt to incorporate.

Business Sense Legal Taxes

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For real estate agents, taxes matter much. In Ontario, the highest personal income tax is 53.53%. This means that when a realtor becomes very lucrative, over half of that earned income would be heading straight to the taxation pot. However, being incorporated as a Personal Real Estate Corporation (PREC) means that there would be massive tax savings. If your taxable income is below $500,000, your corporation will not be taxed too highly since it is around 12.5% for the first half a million, while any amount above $500,000 is taxed at 26.5%. 

Advantages Of PRECs For Realtors

The advantages of PRECs are similar but have some specific differences. PRECs are considered professional corporations and provide some advantages to professionals who work in the real estate sector.

What Is A Professional Corporation?

A professional corporation is a form of corporation providing professional services and subject to regulation by a governing body, such as the Real Estate Council of Ontario (RECO). This will ensure that the professionals in real estate operate in line with industry standards and regulations but provide certain tax benefits and liability protections.

Should You Consider A Personal Real Estate Corporation (PREC)?

A Personal Real Estate Corporation, or PREC, provides many advantages, including tax benefits and liability protection. Ontario real estate agents are regulated through the Real Estate Council of Ontario (RECO) in matters concerning PRECs. This will ensure that a realtor can follow industry standards while taking tax-saving opportunities. You can lower your taxable income and build an efficient business structure by incorporating your real estate business.

Incorporation as a PREC is one of the primary considerations in order to realize various tax benefits. Particularly when your income becomes large enough, you can greatly minimize your tax rate by forming a corporate structure as a realtor. The tax savings allow you to reinvest into the business or build personal investments, a common strategy of successful real estate professionals.

Tax Planning Strategy

As an unincorporated realtor, you may be subject to the highest marginal tax rate depending on your income. However, by setting up a Personal Real Estate Corporation (PREC), you can benefit from a significantly lower tax rate of 13.5%. The additional tax savings can then be reinvested to grow your portfolio.

When structuring your finances, it’s important to note that PRECs cannot invest directly within the corporation. Instead, a holding company should be established. While these are taxed at higher rates, they generate a Refundable Dividend Tax on Hand balance, which is refunded when dividends are paid to the shareholder. With no other sources of personal income, approximately $40,000 in dividends can be received tax-free!

But wait, there’s more—when the property is sold, 50% of the gain is allocated to the Capital Dividend Account, allowing dividends from this account to be paid out entirely tax-free! With our expert business tax service, we help realtors and business owners maximize tax efficiency while ensuring compliance with Canadian tax laws.

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