December 7th - 2013

Lobbying for personal real estate corporations

In Ontario, real estate salespeople are among the few regulated professions that are not permitted to incorporate under current laws.

In Ontario, real estate salespeople are among the few regulated professions that are not permitted to incorporate under current laws.

The Ontario Real Estate Association (OREA) is lobbying to change that. Salespeople in this field cannot take advantage of the lower tax rates enjoyed by other regulated professions that are allowed to incorporate. Chartered accountants, lawyers, health professionals, social workers, mortgage brokers and insurance agents can incorporate. As well, six other Canadian provinces allow incorporation by real estate salespeople.

“It’s a matter of fairness,” says OREA president Phil Dorner. “We believe that REALTORS® should be treated the same way as other regulated professions in our province, and that’s why the establishment of personal real estate corporations continues to be a priority for us.”

Currently, the Real Estate and Business Brokers Act, 2002, (REBBA 2002) does not permit real estate salespeople and brokers to operate their business through a personal corporation.  After examining the tax and financial implications of a change to the act, the association believes that it would be a significant benefit to some REALTORS® while having only a minimal impact on the amount of tax revenues paid into the provincial coffers.

“Incorporating your real estate business is something that really makes sense for high-income performers,” says Dorner. “It’s important that we nurture a business climate in the province that encourages and rewards success.”

The association has identified several benefits of incorporation, particularly for brokers and salespeople with a high level of income. Those earners who fall into the highest income tax bracket may benefit from incorporation. A corporate tax class enjoys tax benefits different from those of an individual, and changes to the current legislation may allow some flexibility in hiring and retirement benefits.

However, additional responsibilities and costs may be incurred by those REALTORS® who wish to incorporate, the study notes. These individuals would need to be prepared to pay for: the cost of incorporating a professional corporation; the preparation of financial statements and an additional tax return, which are usually done by both a lawyer and an accountant; additional accounting work on payroll source deductions for the corporation’s employees and for the Harmonized Sales Tax (HST) for commissions charged. The individual salesperson, as the sole officer of the corporation, may be personally liable for any deductions or HST that the corporation fails to remit.

Currently, an individual real estate salesperson does not have to deal with these matters. However, the failure to maintain corporate records can, in certain cases, result in the corporation being treated as a sham. In this tax context, the individual may be deemed to have earned income directly, and therefore proper corporate maintenance is important.

As a corporation, the salesperson would also be required to withhold and/or make payments on account of income tax, employment insurance, Canada Pension Plan and in some cases Employer Health Tax for its salesperson employee. The corporation would have to undertake all reporting and compliance obligations inherent in this tax class. It would also have to register for and collect HST for the services provided by the corporation to the broker or brokerage.

The appeal of incorporation therefore depends on an individual’s income level and financial circumstances. Those earning income below the highest income tax bracket or those who consume most or all of their income on a yearly basis may not reap the tax deferral benefits that incorporation brings.

Many OREA members would not benefit from incorporation due to the added complexity and costs incurred in setting up a corporation, but for a small portion of members who are high-income earners, the benefits are far greater, says Dorner.

“We’re continuing to work on this issue at Queen’s Park because we believe it is good for business and good for our members.”  

For more on OREA’s progress on this and other lobby issues, visit the Government Relations section of www.orea.com.


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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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