Forming a PREC is a complex task with a number of considerations that may differ depending on every REALTORS^® own business situation. The advantages of forming a PREC exist only if it is set up correctly in accordance with your business, family and personal circumstances.

OREA cannot provide legal, tax, or business advice. The information provided here is intended as a general information guide. Federal and provincial tax laws and rates change frequently. All OREA Members should consult with their own legal counsel and tax advisors regarding their personal situations to determine if forming a PREC makes sense for them and to learn how to ensure that their PREC will provide the benefits they expect.

A professional corporation allows members of regulated organizations to enjoy tax advantages, similar to traditional private corporations. Professional corporations ensure accountability and liability, while safeguarding the public. Regulated by the Real Estate Council of Ontario (RECO) , REALTORS^® have the privilege of forming PRECs under the Trust in Real Estate Services Act (TRESA).

The rules for professional corporations differ slightly across provinces and professions. It is important to work with your accountant and lawyer when you consider forming a PREC. More importantly, the manner in which your PREC functions, the shareholdings, the contractual relationships formed, and how your business is operated and documented, all affect the tax benefits you may hope to achieve.

Your current situation, your family situation, and other factors will affect whether and how you and your family can benefit from forming a PREC. You may need ongoing advice from your tax advisor to determine how to best maximize tax savings as your circumstances change from year-to-year.

It’s important to note that PRECs differ from traditional private corporations in at least the following key ways:

• Only REALTORS^® can be voting shareholders of a PREC.
• Either the REALTOR^® or the PREC or both are subject to the oversight and regulatory powers of RECO.
• The PREC can only be used if specific rules and regulations are followed.
• A PREC does not limit professional liability.

There are a number of factors to consider when deciding to form a PREC. OREA strongly encourages you to work with your financial advisor, lawyer, and accountant to determine if forming a PREC is right for your personal and business situation.

When beginning to think about whether forming a PREC is the right decision for you, consider the following questions:

• Are you earning more than what you need to meet your daily living expenses?
• Do you want to save more money for retirement?
• Could you benefit from distributing business income to your family members?
• Are you considering passing your business on to a family member who is or will be a real estate salesperson or broker registered with RECO?
• Are you considering selling your business to a real estate salesperson or broker registered with RECO?
• Are you incurring significant business expenses that are either not deductible, such as life insurance premiums, or only partially deductible, such as meal and entertainment expenses?
• Where are you in your professional journey? Are you just starting your real estate career or are you heading towards retirement?

Additional resources:

When you form a PREC, you are creating a legal corporation that will receive the revenue from your real estate business, pay the expenses of your real estate business, and be a separate taxpayer. As a REALTOR^®, you will need to be in full control of the PREC, which we will refer to as a “controlling registrant” in this guide, and which the regulations call a “controlling shareholder”.

To ensure that any transfer of your existing business to a PREC is done on a tax-deferred basis, you should speak to your tax advisor. This is particularly important if a controlling registrant has set up a sub-real estate brokerage and wants to form a PREC.

You will become the controlling registrant of the corporation, meaning that you will be the sole holder of all voting shares of the PREC and make all of the decisions for the PREC. In fact, only real estate salespeople and brokers registered with RECO may control a PREC. Under TRESA, PRECs do not need to become a registrant with RECO to receive compensation for a trade in real estate, so long as the PREC is controlled by an existing registrant. Non-voting shares of the PREC may be owned by your family members.

While you will be in control of the PREC, it will independently be earning revenue and paying tax on its net income. This means your brokerage will be paying the remuneration for your real estate services plus applicable HST directly to your PREC. It will be taxed at either the small business or general corporate tax rate, depending on the income level of the PREC and associated corporations, the amount of accumulated wealth held by the PREC and associated corporations, and the amount of investment income earned by the PREC and associated corporations in that year.

¹ The lower small business corporate tax rate applies to corporations that are not carrying on a personal services business or specified investment business for income tax purposes. This should be discussed with your tax advisor.

Forming a corporation requires additional administrative tasks for your real estate business that can result in additional operating costs. It is important to remember that PRECs are a separate entity from you as a real estate professional, which means that you are required to file a separate income tax return for your corporation. The obligation to file payroll and HST returns will shift from you personally to the PREC, so you will need to close the personal payroll and HST accounts once you have filed any final personal returns. You will also be required to file a separate annual corporate return, in addition to the income tax return. Your advisors should provide you with the details of all these requirements.

Many professionals who form personal corporations hire an accountant to take care of their tax filings and to provide ongoing tax advice about how business income should be distributed as circumstances change from year to year. In addition, you will incur legal costs when you initially incorporate your business, prepare required PREC contracts, and on an ongoing basis to keep your corporation in good standing.

While some professional corporation regimes in Canada allow several registrants to incorporate a joint professional corporation, thereby combining their respective practices under one corporate entity, the PREC regime follows the single registrant model. Each PREC may have only one REALTOR^® associated with it, who must solely control the PREC. As a result, the PREC may only receive compensation from the brokerage for trading in real estate conducted by the controlling REALTOR^®, not on behalf of multiple REALTORS^®.

The benefit to this model is the elimination of a separate registration requirement for the PREC. Only the individual REALTOR^® needs to become a registrant and be responsible to RECO. The PREC itself will not need to seek registration and incur the additional costs and administrative burden of being separately registered.

The information on this page is available as a pdf download: