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The Advantages of Forming a Personal Real Estate Corporation

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Most real estate agents operate their businesses as sole proprietors, but at the beginning of 2022, changes made to the Manitoba Real Estate Services Act now allow agents and brokers to incorporate and form a Personal Real Estate Corporation (PREC). This business structure allows them to take advantage of benefits that are exclusive to corporations, particularly those that are related to income and tax planning. If you are a real estate agent, here are the top reasons why you should consider incorporating your real estate business.

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Tax Deferral

In Canada, personal income and corporate income are taxed differently. Income that is earned through a corporation is taxed at a corporate tax rate. This is a significantly lower rate than the personal tax rate of a non-incorporated business.

Any dividends or salary that you withdraw from the corporation will be taxed at a personal tax rate, while any income leftover can remain in the corporation. Income that stays in the corporation can be used for investments or savings or can be reinvested into your business. It can also be left in the corporation until needed. For example, when less income is expected in the future, income in the corporation can be paid out as salary or dividends.

The ability to defer paying tax on your income is one of the top advantages of the Personal Real Estate Corporation.

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Income Splitting

Income splitting is the strategy of moving income from a family member in a higher tax bracket to a family member in a lower tax bracket. This is done to reduce the overall tax burden.

When you incorporate your real estate business, family members are able to own non-voting shares in the PREC. These family members may then be paid dividends from the corporation. In order for income splitting to be advantageous, the family member must be working in the business on a regular basis and cannot be a registrant themselves.

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Liability Protection

When you form a PREC, you transform your business into a legal entity that is separate from yourself. This offers a layer of protection for your personal assets should something go awry in the legal department.

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Specialized Remuneration Planning

Corporations allow access to different remuneration options such as dividends, salary or bonuses. Depending on your situation or goals, your accountant can provide insight on what works best for you.

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Retirement Planning

Income that is kept in the corporation can be used to fund retirement plans. This allows for a reduction or complete elimination of Canada Pension Plan contributions, giving you more control over where your income goes.

While there are more situation-specific benefits that haven't been mentioned here, these are the main advantages of incorporating your real estate business.

If a Personal Real Estate Corporation sounds right for your business, contact us today for personalized, professional advice and to set up your PREC, CRA accounts and corporate records.

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