PRECs are finally here! You can apply as early as October 1, 2020. Here’s what you need to know:
After over a decade of lobbying by various brokerages and organizations, the Government of Ontario has finally allowed for real estate salespersons and brokers to form a Personal Real Estate Corporation. We know many Realtors are eager to learn more about how this may apply. More information is coming soon but in the meantime, here’s some information to help you decide if forming a PREC may be for you.
In Ontario, Registrants with the Real Estate Council of Ontario are independent contractors, who are required to operate under a Brokerage, which is subject to its own requirements under the Real Estate Council of Ontario (for example, having a Broker of Record, Trust Accounts, etc). There are few opportunities for registrants to operate their own businesses beyond simply having a BN with the Canada Revenue Agency, and the ability to open a business banking account which could provide some small benefits in managing the income from your efforts as a registrant.
Before now, registrants have had the opportunity to incorporate: To create a sub-brokerage under their primary brokerage. This allows higher-producing Realtors and teams the freedom and flexibility to manage profits and expenditures as a business, create a payroll, and other freedoms. Sub-brokerages can also offset some responsibilities (such as managing accounts, administration and transaction management, etc) by purchasing the services from the parent brokerage. However sub-brokerages – or “agent co’s” as they are sometimes referred to – require their own Broker of Record, separate trust accounts, and other requirements as set out by law.
The creation of a sub-brokerage is costly in time and money. Setting up and managing a sub-brokerage typically is most beneficial for Realtors and/or team leaders consistently producing more than $250,000 in GCI annually, and often can be more trouble and cost than they are worth for anyone earning less.
Now, with the addition of Personal Real Estate Corporations, registrants can benefit from the ability to better manage their income, without changing their position within their brokerage. It’s open to sales representatives, regardless of whether or not you’re running a team, on a team, or working solo. The change happens at CRA level, not at a brokerage level.
Under a PREC, you can choose to personally pay yourself less than you have earned, allowing you to better control your income tax, and professional investments. Developing a “war chest” allows you to better manage your business during market turns, and the option to plan to continue to pay yourself an income should you choose to take a lengthy time, among other benefits.
It’s unclear yet how long the application process may take, or what’s involved. We expect these details to become more clear in the coming weeks.
PRECs may not be beneficial for everyone, but the additional option means good things overall for real estate as a career in Ontario.