Ontario Real Estate Agents and Professional Corporations
Realtors in Ontario have traditionally been left out in the cold when it comes to taking advantage of the tax benefits of professional corporations. Under the definition section of the Real Estate Brokers Act, real estate brokers and salespersons are required to be individuals. The effect is to prevent real estate brokers and salespersons, unlike lawyers, health care workers, insurance agents, and architects, from forming a professional corporation (i.e.personal real estate corporations (“PREC”)).
However, a light may be appearing at the end of the tunnel for Ontario Realtors. Bill 104, titled the Tax Fairness for Realtors Act, 2017, passed the second reading on March 23, 2017, and is currently under review by the Standing Committee on General Government. After the third-reading at the Standing Committee, the Committee will provide commentary to the legislature and propose potential amendments at which time the legislature will vote. If Bill 104 passes, Ontario real estate professionals stand to reap many tax advantages.
Bill 104 would permit a PREC to register as a real estate broker or salesperson, provided the individual professional/equity shareholder of the PREC has the necessary qualifications to be registered.
The Bill would require PREC’s to be a corporation under the Ontario Business Corporations Act (“OBCA”). The Act mimics other professional corporate statutes by restricting the corporation’s activities to trading real estate and requiring an individual to own the equity shares.
Real estate professionals conducting their business through a PREC could potentially reduce their tax burden significantly and gain the ability to defer their tax liabilities. Real estate professionals using PRECs would be accessing Ontario’s 15% tax rate for Canadian controlled small businesses on the initial $500,000 of their taxable income. Corporate income above $500,000 would then taxed at $26.5%. Compared with Ontario’s top marginal tax rate for individuals of 53.53%.
Real estate professionals would also gain the ability to keep their earned income in their PREC. This option creates a deferral opportunity by delaying taxation on the income until it is removed from the corporation, allowing for more advantageous tax planning.
Bill 104, if enacted in its current form, would also allow “income sprinkling” by allowing immediate family members to own non-equity shares in the corporation and therefore receive dividends. However, the Bill was drafted before the Federal Government proposed plans to limit this form of tax planning.
If Bill 104 becomes law, real estate professionals in Ontario should speak with their legal advisors about carrying on their trade through a PREC to utilize the numerous tax benefits. Rosen Kirshen offers a suite of tax and corporate advisory services to professionals in Ontario, and we would be thrilled to help you capitalize on this potentially exciting opportunity. Kindly contact us today to learn more!