[vc_row][vc_column][vc_custom_heading text="Incorporation for Real Estate Agents FAQ" font_container="tag:h1|font_size:40|text_align:center|color:%23ca0b14" use_theme_fonts="yes"][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]QUESTIONS AND ANSWERS FROM BROKERS/SALESPERSONS REGARDING PERSONAL REAL ESTATE CORPORATION (PREC)

As of October 1, 2020, Personal Real Estate Corporations (PREC) have been allowed in Ontario. This means that realtors will now be able to incorporate their business and have their self-employed revenue to be paid into a PREC. This is great news for realtors as it can provide many benefits for them, such as lower tax rates, tax deferral opportunities, and income splitting.[/vc_column_text][vc_toggle title="What should I need to do if I want to set up a PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]

  1. Consult your accountant and your lawyer.
  2. Confirm that the brokerage will agree to the use of the PREC
  3. Ensure the PREC meets the criteria set out in REBBA (see our PREC Checklist!)
  4. Ensure that there is an the agreement between the registrant-PREC-brokerage
  5. Inform the RECO Registrar of the info in Q2 to registration@reco.on.ca
[/vc_toggle][vc_toggle title="Is it mandatory that I register a PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]The new rules allow for, but do not require, the use of a PREC.[/vc_toggle][vc_toggle title="Does a PREC have to be registered with RECO?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]A PREC does not need to be registered with RECO. BUT, the RECO Registrar must be
notified by email to registration@reco.on.ca of:
- the legal name of the PREC ,
- the name of the controlling shareholder,
- the PREC’s address for service.[/vc_toggle][vc_toggle title="Does my brokerage need to accept my PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]Brokerages are not obligated to do so. You should first speak to your broker of record to inquire whether the brokerage is willing to enter into the required agreement with the PREC.[/vc_toggle][vc_toggle title="Do I need to set up a real estate trust account for my PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]No. The PREC would not have a real estate trust account and is not permitted to hold any money or other property as a deposit in connection with a trade in real estate.[/vc_toggle][vc_toggle title="Can I advertise using the name of the PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]No. you cannot represent to the public that the corporation carries on the business of trading in real estate.[/vc_toggle][vc_toggle title="I have a corporation set up for other purposes. Can I use it as a PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]A registrant may be able to use an existing corporation if it meets the criteria and conditions of a PREC (refer to checklist) subject to limitations with other types of registered businesses that may prohibit its use as a PREC.[/vc_toggle][vc_toggle title="Are there any restrictions on the activities a PREC can engage in?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]The PREC must not trade in real estate other than to provide the services of its controlling shareholder (broker or salesperson) to the brokerage. There are no restrictions in the legislation on what other activities a PREC might engage in. Permitted activities will depend on the objects of the corporation.[/vc_toggle][vc_toggle title="Is a PREC covered by the professional liability insurance program administered by RECO?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]No. A PREC is not a registrant and therefore is not insured under the insurance program.[/vc_toggle][vc_toggle title="I read that limited liability is a benefit of a corporation. Will I be shielded from liability if I have a PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]Even though services to clients would be provided through the PREC, PRECs and its controlling shareholder (broker) still have to abide by all professional and ethical obligations under REBBA and will remain liable for said services.

If the PREC commits any professional misconduct, RECO may discipline, the broker and the PREC by way of suspensions, cancellations, or restrictions on either licence. [/vc_toggle][vc_toggle title="Can my team be paid remuneration through my PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]Only one broker/salesperson may be paid remuneration through its PREC. All team members remuneration must go from the brokerage to each of the individual team member or their respective PRECs.[/vc_toggle][vc_toggle title="Can registrants who are spouses own the equity (voting) shares of the corporation?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]No. Only the registered broker/salesperson can. A family member is a spouse, child, parent, or a trust for a minor child can however own non-voting shares.[/vc_toggle][vc_toggle title="After I set up my PREC, are there future fees?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]All business corporations, including PRECs, are required to file what is called an Annual Corporate Return – this informs the Ministry of Government Services in Ontario that the corporation is still active, and the address or other details of the corporation are up to date.

All business corporations, including PRECs, are also required to file Annual Corporate Tax Return – your accountant would do this for you.[/vc_toggle][vc_toggle title="How does the PREC allow income splitting?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]The existence of a separate corporate entity (PREC) that receives business income allows that corporation the ability to distribute its revenues and income as salary and issue dividends to its family members to own non-voting/non-equity shares of the PREC.[/vc_toggle][vc_toggle title="Who qualifies as family members?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]Family Members includes your spouse, parents, children, children under 18 years of age, or a trust for a minor child.

The definition of spouse is “a person to whom the shareholder is married or with whom the shareholder is living in a conjugal relationship outside marriage.”

The definition of a parent includes a person who has “demonstrated a settled intention to treat [you] as a child of his or her family, except under an arrangement where the child is placed for valuable consideration in a foster home by a person having lawful custody.”

The definition of a child includes one you have “demonstrated a settled intention to treat as a child of his or her family, except under an arrangement where the child is placed for valuable consideration in a foster home by a person having lawful custody.”[/vc_toggle][vc_toggle title="If I have a team, can I use my team name?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]Yes. But your other team members may not use the same name or a confusingly similar name, so you will need to distinguish your PREC’s name from any name other team members choose for their PRECs.

A group of realtors cannot together form and use a single PREC.

You cannot make another realtor a non-voting shareholder of your PREC except if the realtor is also a family member.

Individual realtors can still work together in teams even if one or all of them have a PREC, but keep in mind that their agreements with each other and their brokerage may need to be adjusted.[/vc_toggle][vc_toggle title="Can a PREC be used for passive investment purposes?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]Yes, a PREC is a regular Ontario Business Corporation Act so there are no requirements that it refrain from carrying on other activities such as passive investing.[/vc_toggle][vc_toggle title="What are the insurance obligations in using a PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]The PREC is an additional separate entity or person in the eyes of the law meaning that it can be sued, and since it will be providing the services of the controlling Registrant, you should consult your insurance broker for appropriate insurance coverage for the PREC in addition to your individual realtor insurance.[/vc_toggle][vc_toggle title="What name can I use for the PREC?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]The requirements with respect to the name of a PREC are those imposed on any business corporation incorporated under the Ontario Business Corporations Act. The name should not suggest that the PREC itself is trading in real estate. An example of an appropriate name would be the individual Registrant’s name followed by “Professional Real Estate Corporation”. An example would be “John Smith Professional Real Estate Corporation”.[/vc_toggle][vc_toggle title="If I am with brokerage abc, and I am transferring to brokerage xyz, do I need to transfer my PREC license?" style="arrow" color="black" size="sm" css_animation="fadeInDown"]Remember that a PREC does not need to be registered or licensed with RECO, but what you need to do is to enter into a new agreement with brokerage xyz.[/vc_toggle][/vc_column][/vc_row]