Part #2 – What every Real Estate Agent needs to know about their Personal Real Estate Corporation during Tax Season.
As the real estate industry continues to evolve, more Canadian REALTORS® are choosing to incorporate by setting up a Personal Real Estate Corporation (PREC). Since Ontario allowed PRECs in 2020 (with other provinces following suit), this structure has provided REALTORS® the opportunity to take advantage of potential tax deferrals, income splitting, and business flexibility.
But with those benefits come responsibilities, including careful tax planning, compliance with CRA regulations, and maintaining proper financial records. Whether you’re newly incorporated or considering the move, here’s what you need to know about managing a PREC for optimal success.
What Is a PREC?
A Personal Real Estate Corporation (PREC) is a corporation owned and controlled by a licensed real estate agent, used to receive and manage the income they earn through their real estate practice. While a PREC allows for some tax and income planning advantages, it’s important to understand its limits:
- You must remain personally registered as a real estate agent with your provincial real estate regulator.
- All trading in real estate must still be carried out under your brokerage’s supervision.
- The corporation is not a separate licensee—you, the agent, still hold the license.
Key Benefits of Incorporating
- Tax Deferral
- PREC income is taxed at the small business rate (around 12–15% depending on the province) on the first $500,000 of active business income.
- This is significantly lower than personal tax rates, which can exceed 50% in some provinces.
- You can leave money in the corporation and defer personal tax until funds are withdrawn.
- Income Splitting
- You may be able to pay dividends to adult family members who own non-voting shares, reducing overall household tax, though this must be carefully planned to comply with the Tax on Split Income (TOSI) rules.
- Retained Earnings and Reinvestment
- You can reinvest income inside the corporation, useful for purchasing assets, contributing to a corporate investment portfolio, or funding future growth.
- Business Deductions
- Operating a corporation provides opportunities for additional deductions, such as wages paid to employees or management fees to related companies.
What REALTORS® Must Track Inside a PREC
Once incorporated, your financial record-keeping becomes even more important. The CRA treats a PREC like any other small business, and it must file a T2 Corporate Income Tax Return annually.
Be sure to track:
- Commission income (must be paid directly to the corporation by the brokerage)
- Business expenses incurred by the PREC
- Salaries or dividends paid to yourself and family members
- GST/HST collected and remitted (if applicable)
- Any assets owned by the corporation (e.g., equipment, vehicle)
Tax Filing for a PREC
- T2 Corporate Tax Return
- Due six months after the corporation’s fiscal year-end.
- Taxes owing must be paid within two or three months of year-end, depending on size and income type.
- T4s and T5s
- If you pay yourself a salary, you must issue a T4 slip and remit payroll deductions (CPP, income tax).
- If you pay dividends, issue a T5 slip.
- GST/HST Remittance
- If your PREC is registered for GST/HST, ensure you’re collecting and remitting properly, and claiming input tax credits on eligible expenses.
- Payroll Setup
- If paying a salary, your corporation must register for a payroll account with the CRA and remit deductions on time.
Compliance Tips
- Use accounting software to separate personal and corporate finances, never mix accounts.
- Work with a CPA familiar with real estate and corporate taxation.
- Ensure shareholder agreements and corporate documents are in order (especially for income splitting).
- Maintain board resolutions and dividend declarations when taking income from the corporation.
Is Incorporating Right for You?
A PREC isn’t for everyone. It often makes the most sense if:
- You’re earning more than you need personally and can leave income in the corporation
- You want to split income with a spouse or adult child
- You’re planning long-term investments or business growth
- You’ve consulted with a tax professional about your personal situation
If you’re just starting out or your income varies significantly from year to year, the benefits of a PREC might be limited once you factor in additional accounting fees and administrative work.
PREC and the Valuable Tax Planning Opportunities
Incorporating as a REALTOR® in Canada through a PREC can offer valuable tax planning opportunities, but only if it’s set up and managed correctly. From tax filings and payroll to dividends and compliance, running a PREC requires ongoing attention and solid professional advice.
Don’t go it alone. Engage with a tax advisor who understands the real estate industry and can tailor strategies to your business goals. Your PREC can be a powerful tool, but only when it’s handled the right way.
Would you like a A PREC CHECKLIST? Connect with us at buzzbuzzmediainc@gmail.com and we will send you a comprehensive resource to help keep you organized.
Contact your Accountant to ensure you file on time.
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