Broker's Playbook - Good For Real Estate



Personal real estate corporation Ontario

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At the end of 2020, the Government of Ontario introduced new changes to the Trust in Real Estate Services Act (formerly the Real Estate and Business Brokers Act, 2002) that introduced the ability for Ontario realtors to start their own personal real estate corporation (PREC). By using a PREC, Ontario realtors are now able to access certain financial and tax benefits that were previously unavailable to them. This is similar to benefits available to professionals like lawyers and dentists who have previously been able to operate personal corporations.

PRECs can be a good choice for some, but there are disadvantages as well. It’s important that agents understand how PRECs work so that they can take advantage of potential benefits or avoid starting their own when it isn't right for them. Furthermore, starting a personal real estate corporation can be a bit complicated and if you want to take this step, you are going to want to understand exactly what the process is and how best to set up your PREC.

In this article, we will examine what a personal real estate corporation is, how they work, why or why not an Ontario realtor should choose to use a personal real estate corporation, how to begin setting up your PREC, and more. After reading this article, you should have a great idea whether or not a PREC is right for you and know the basic steps required to begin operating one.

What is a personal real estate corporation (PREC)?

A personal real estate corporation is a legal corporation that belongs to an individual real estate agent or broker. By incorporating, real estate professionals can access income and tax planning benefits that are unique to corporations. Because these corporations are mostly designed to benefit real estate agents for financial planning purposes, they are a bit more limited than a standard professional corporation. PRECs must be controlled and directed by a single real estate salesperson who controls all equity and voting shares in the company. In addition, their main function is to provide the services of the main shareholder on behalf of the brokerage they are employed by and may not trade in real estate independently as a brokerage would.

PRECs are their own separate legal entity from the controlling shareholder and can own property, investments, insurance policies, as well as holding money. On the other hand, a PREC also comes with all the other aspects of owning a corporation such as the need to file separate business taxes.

Why should real estate agents want to form a PREC?

Tax benefits

One of the biggest reasons for establishing a PREC is for the tax deferral and tax planning benefits it offers.

For example, a real estate agent without a PREC is paid by their brokerage and this income is taxed at the applicable income tax rate for their income level. In a business like real estate, there can be up and down times and you may find yourself paying a lot of tax one year and making much less the next.

By using a PREC, you can smooth out your income and, therefore, your taxes. The brokerage will pay remuneration to the PREC which is then taxed at a much lower corporate tax rate. This held money can then be dispensed through a salary or dividends to the agent themselves. This money can be paid out in periods of lower income or periods of no income such as retirement or time off. This allows you to legally pay less in taxes over time.

Income splitting

Under Ontario law, there is a tax on split income which requires dividends paid to family members to be taxed at the highest tax rate. However, with a PREC, you may be able to avoid this tax on income splitting.

Though only the agent who registers the PREC can hold voting shares, family members may hold a non-voting share and receive dividend payments. If this family member works for 20 hours or more a week for the PREC, they will be exempt from the tax on split income and be taxed at their own income tax rate.

Reduce Canadian Pension Plans (CCP) expenses

Just like income tax, Canadian Pensions Plan contributions are automatically collected on an individual agent's income. An agent with a PREC can instead collect income through dividends and choose to forgo the CPP contributions. This allows you the freedom to earn more now and plan and fund retirement on your own terms.

Why might a PREC not be right for me?

While PRECs is a good option for some, they are not ideal for everyone. Each agent will have their own circumstance that will dictate whether or not it’s best to use a PREC and if you are considering using one, you should talk to a financial expert for the most accurate advice for your situation.

Best for high-income agents

The benefits from a PREC come primarily from the ways it allows you to manage your income and taxes, which will most benefit agents who are making a significant amount more than is needed to cover their expenses. If you are just getting by, the benefits of splitting or deferring income will not mean much to you.

Upfront costs of registration

Going along with that, setting up a PREC can also cost you a significant amount of cash upfront for registration and legal fees, which may not be worth it to spend if the financial benefits are small. You can expect to spend at least a couple of thousand dollars setting up your PREC.

Personal and legal liabilities

PRECs also require some additional work for things like administrative tasks and there are also a few regulations you will need to follow in terms of what you can and can't do with a PREC, such as certain forms of advertising and business ventures. Though your PREC is a separate legal entity from yourself, you will still be personally accountable for maintaining legal and professional standards.

How to register a PREC

If you have decided that a PREC is right for you and consulted the necessary professional legal and financial advice, there is still a bit of work to be done before you can operate a legal PREC.

The Real Estate Council of Ontario (RECO) provides a comprehensive checklist of all the requirements you need to see before you can operate your PREC, but we will go over some of the most important.

Most importantly, your business will need to be incorporated under the Ontario Business Corporations Act. To do so, you will need to decide on a name for your business and make sure it’s not used by any other corporations. Your corporation will also need an address in the province to serve as the official head office. You will then need to prepare and file your articles of incorporation with the Ministry of Government and Consumer Services and pay a fee of approximately $360.

You will also need to ensure that your PREC meets the requirements in terms of business structuring and you should probably speak to your brokerage so they know you are starting the process. Your brokerage will have to enter an agreement with your PREC to provide remunerations, though they are not under obligation to do so. This is why it’s important to clear it with your brokerage first or you may not be able to use your PREC.

Finally, you will need to submit your PRECs legal name and address to RECO for approval.

RECO notes that if you have an existing corporation you may be able to register as a PREC, provided it meets all of the required criteria. Corporations operating in other regulated industries may have additional restrictions applied to them that can limit their use beyond the standard rules of a PREC.


The creation of a legal framework for Ontario realtors to begin operating personal real estate corporations is a welcome change that provides even more options for realtors who want to expand their business. Though it is by no means a necessity, a PREC can be a powerful tool for tax and income purposes for any Ontario realtor.