What is a Personal Real Estate Corporation (PREC)
A Personal Real Estate Corporation (PREC) is a corporation specifically for a real estate agent or broker who is trading in real estate. It allows a real estate agent to earn business income through a corporate structure, allowing them to access tax deferrals. The following provinces allow PREC’s to be established: British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia and most recently, Ontario.
What are the benefits of setting up a Personal Real Estate Corporation PREC?
Tax Deferral
The main benefit of a PREC is to defer income taxes by not withdrawing all of the profits earned within the business. Since income taxes are highest at the personal level, this deferral can be beneficial.
For example, before setting up a PREC, an agent earning $200,000 will be taxed on the entire income at personal tax rates.
Alternatively, if an agent earns $200,000 in a PREC but only needs $100,000 for personal needs, they can choose to only withdraw $100,000 and will be taxed at personal rates on the $100,000 and corporate rates on the remaining $100,000.
Income Splitting
A PREC can allow for income splitting with spouse, parents or children, through the payment of salary or dividends if they are in a lower income tax bracket and actively involved in the operations of the business.
What are the costs of a Personal Real Estate Corporation (PREC)?
Incorporation charges – up to $2,500 one time
Accounting fees – the bookkeeping and tax fees for an average PREC average about $500/month for bookkeeping services and $2,500/year for a corporate tax return.
Insurance – insurance premiums can increase for corporations
When should I consider setting up my Personal Real Estate Corporation PREC?
Planning is important when making a decision to set up a PREC. The advantages need to be weighed against the costs so the answer is not always clear cut. Consider seeking the advice of a professional when making this decision.