As of October 1 2020, real estate salespeople and brokers may incorporate in Ontario and arrange for their self-employed revenue to be paid into a PREC (personal real estate corporation). Many real estate professionals are choosing to incorporate to take advantage of certain tax benefits. However, there is a lot to consider before you form a PREC.
How does a PREC work?
👉🏻When you form a PREC, you are creating a legal corporation
👉🏻Brokerage will be paying commissions plus applicable HST directly to your PREC.
👉🏻Expenses related to the real estate business will be deducted from the commissions paid
👉🏻Profits under $500,000 will be taxed at 12.5%. Profits over $500,000 will be taxes at 26.5%
👉🏻Without PREC, Profits are taxed at personal tax rates between 20% and 46%
What are the benefits of incorporating under PREC?
✅Income tax deferral 👉🏻Agents will withdraw funds necessary for personal living expenses at personal tax rate. Remaining funds will stay in the corporation and taxed at lower tax rates
✅Income splitting opportunities with family members
✅Flexibility/savings with Canada Pension Plan
✅Retirement and real estate opportunities
Please call us to discuss incorporation