Beyond Bending Tell You How
A Personal Real Estate Corporation (PREC) is a legal entity that is incorporated for the purpose of carrying on business as a real estate professional. This type of corporation is unique to Canada and has only been available to real estate professionals since 2010. Prior to this, real estate professionals were not allowed to incorporate their businesses.
By incorporating their business, real estate professionals are able to take advantage of certain tax benefits that are not available to individuals. This allows them to keep more of their hard-earned money and make more strategic financial decisions for their business.
Why Should You Incorporate as a Real Estate Professional?
There are several reasons why incorporating as a real estate professional may be beneficial:
Tax Benefits
One of the main benefits of incorporating as a real estate professional is the ability to take advantage of certain tax benefits that are not available to individuals. For example, incorporated real estate professionals can deduct certain expenses that are not deductible by individuals, such as:
- Accounting and legal fees
- Office rent and utilities
- Advertising and marketing costs
- Insurance premiums
- Travel and entertainment expenses
Additionally, incorporated real estate professionals can pay themselves a salary and receive dividends, which can result in significant tax savings.
Protecting Your Personal Assets
Another key benefit of incorporating as a real estate professional is the ability to protect your personal assets. When you operate your business as a sole proprietorship or partnership, your personal assets are at risk if your business is sued or goes bankrupt. By incorporating your business, you create a separate legal entity that can protect your personal assets from business liabilities.
Professionalism
Incorporating your real estate business can also help to enhance your professional image. By having a professional corporation, you can demonstrate to your clients that you are serious about your business and are committed to providing them with the highest level of service.
How to Incorporate as a Real Estate Professional
In order to incorporate as a real estate professional, you will need to follow these steps:
1. Choose a Name for Your Corporation
The first step in incorporating your real estate business is to choose a name for your corporation. The name must be unique and cannot be similar to any other corporation in your province or territory.
2. Register Your Corporation
Once you have chosen a name for your corporation, you will need to register it with your provincial or territorial government. The registration process varies depending on where you live, but generally involves filling out a registration form and paying a fee.
3. Obtain a Business Number
After you have registered your corporation, you will need to obtain a Business Number (BN) from the Canada Revenue Agency (CRA). This number is used to identify your corporation for tax purposes.
4. Open a Corporate Bank Account
Once you have obtained a BN, you can open a corporate bank account for your business. This will allow you to keep your personal and business finances separate, which is important for tax and liability purposes.
5. File Your Taxes
As a corporation, you will need to file a separate tax return for your business each year. It is important to keep accurate records of all your business expenses and income, as well as to consult with a tax professional to ensure that you are taking advantage of all available tax deductions.
Important Notes About Personal Real Estate Corporations
There are a few important things to keep in mind when incorporating as a real estate professional:
1. Eligibility
Not all real estate professionals are eligible to incorporate. In order to be eligible, you must be a licensed real estate professional and meet certain criteria set out by your provincial or territorial real estate regulatory authority.
2. Limitations on Activities
Personal Real Estate Corporations are limited in the activities they can engage in. For example, they cannot provide real estate services to the public unless they are licensed as a real estate brokerage. Additionally, they cannot provide services that require a license that they do not hold (e.g. mortgage brokering).
3. Renewal and Reporting Requirements
As a Personal Real Estate Corporation, you will be required to renew your corporation annually and file annual reports with your provincial or territorial government. Failure to comply with these requirements can result in fines and penalties.
FAQs About Personal Real Estate Corporations
What is the difference between a Personal Real Estate Corporation and a regular corporation?
A Personal Real Estate Corporation is a type of corporation that is specifically designed for real estate professionals. It is subject to certain limitations on the activities it can engage in and is eligible for certain tax benefits that are not available to regular corporations.
Can I incorporate my real estate business if I am a sole proprietor?
Yes, you can incorporate your real estate business even if you are currently operating as a sole proprietor. In fact, many real estate professionals choose to incorporate their business as a way to protect their personal assets and take advantage of tax benefits.
What are the tax benefits of incorporating as a real estate professional?
Incorporating as a real estate professional allows you to deduct certain expenses that are not deductible by individuals, such as accounting and legal fees, office rent and utilities, advertising and marketing costs, insurance premiums, and travel and entertainment expenses. Additionally, incorporated real estate professionals can pay themselves a salary and receive dividends, which can result in significant tax savings.
Do I need to be licensed as a real estate broker to incorporate my business?
No, you do not need to be licensed as a real estate broker to incorporate your business. However, if you plan to provide real estate services to the public, you will need to obtain a brokerage license.
