Personal Real Estate Corporations

A personal real estate corporation (“PREC”) offers real estate professionals the ability to take advantage of the flexibility in income planning and tax planning. Managing brokers, associate brokers, and representatives are all eligible to license a personal real estate corporation.

In order for a licensed realtor in British Columbia to incorporate a PREC, the licensed realtor and the PREC must comply with the provisions of the Real Estate Services Regulations. The following are criteria that must be met:

  •  The licensed realtor must be the sole president (officer), director and voting share holder of the PREC;
  • Any non-voting shares are legally and beneficially owned by the licensed realtor or an affiliated person or entity of the licensed realtor (i.e. a spouse, child);
  • The PREC only provides real estate services or services that facilitate real estate services); and
  • The legal name of the PREC must include the legal name of the licensed realtor or a recognizable short form of the legal name, followed by the words “Personal Real Estate Corporation”.

                                                                                BENEFITS OF A PREC

Lower income tax rate:

In British Columbia, unincorporated real estate agents pay income tax based on a marginal tax system. Marginal tax is simply the amount of tax paid on an additional dollar of income. As the realtor’s income rises, so does their tax rate.

  • Unincorporated realtor with income > $100,000.00 = 40.7% tax
  • Unincorporated realtor with income > $200,000.00 = 47% tax
  • A PREC however pays a small business tax of just 13% on up to $500,000.00 of commission income retained through the corporation

Tax deferral:

In British Columbia, unincorporated realtors collect their income on each sale of a property. This can result in fluctuating annual salaries – high income one year and low income the next year. In a high income year, an unincorporated realtor will pay significant income tax on each additional dollar earned. Through a PREC, a realtor can retain business income in high income years and defer to lower income years.

Income splitting:

A PREC can pay income to the realtor and his or her family members as salary or dividends. Realtors can also appoint family members as shareholders of their PREC although the realtor must own all voting shares of the corporation. Non-voting shares and dividends can be issued to other shareholders of the PREC.

Tax savings are achieved when there is income splitting among family members at a lower tax rate. In recent years, the government had imposed limitations on income splitting, thus income allocated to family members may have adverse tax consequences. Generally, the family member receiving salary or dividend must be actively involved in the business of the PREC.

Once your PREC is formed:

In addition to the initial one-time incorporation costs, all corporations are required to file annual reports in order to maintain an active status and good standing.

Both the personal real estate corporation and the controlling individual must be licensed. Therefore there are two licenses to be maintained once the personal real estate corporation license is issued. This means that you are responsible to renew both your license and the personal real estate corporation license every two years.

Reach out to our team today:

If you are a licensed realtor in British Columbia and you are interested in incorporating a PREC or obtaining further information regarding a PREC, please contact Satinder Dhaliwal at 604-360-0516.

Based in the Lower Mainland, our firm advises a wide range of clients including entrepreneurs, corporations and partnerships. We aim to provide innovative solutions to complex business and legal matters.
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