Understanding Personal Real Estate Corporations (PREC) 

Historically, professionals in the real estate sector, such as realtors, agents, and brokers, couldn’t establish corporations to leverage tax benefits. This privilege was reserved for other professionals like doctors, lawyers, and accountants. However, the landscape changed with the introduction of the Trust in Real Estate Services Act (TRESA) on October 1, 2020. This act made it possible for managing brokers, associate brokers, and representatives to operate within a Personal Real Estate Corporation (PREC). 

Key Benefits of Incorporating as PREC: 

• Tax Planning: One of the most significant advantages of a PREC is the tax planning opportunities it offers. A real estate professional can potentially reduce their tax rate to as low as 12.2%, compared to some realtors in Ontario who might be subjected to personal tax rates of up to 53.53%. 

Specific Conditions and Requirements for PREC: 

• Controlling Individual: To qualify for a PREC, the controlling registrant should already be a member of the RECO. Only a realtor can own voting shares or be a director of a PREC. While other family members can be part of the corporation, they can only hold non-voting shares. 

• Business Restrictions: Despite its name, a PREC isn’t limited to real estate activities. However, as per section 5 of the Article of Incorporation, a PREC shouldn’t engage in the “business of trading in real estate.” 

• Personal Liability and RECO Monitoring: A PREC is a distinct legal entity, formed by a real estate professional, and must meet specific conditions, including being incorporated under the Ontario Business Corporations Act and having a controlling shareholder registered as a broker or salesperson. 

• PREC’s Exemption from RECO Registration: A PREC can be exempted from RECO registration if it meets certain conditions, such as its controlling shareholder being employed by a brokerage to trade in real estate and not carrying on the business of trading in real estate other than offering its controlling shareholder’s services to the brokerage. 

• Remuneration to PREC: A brokerage can pay a PREC if the PREC is exempt from registration and the remuneration has been earned by the PREC’s controlling shareholder. 

• Notice to RECO: Before a PREC receives any payment from a brokerage, the controlling shareholder must notify the RECO about the PREC’s legal name and address. Any changes to this information or circumstances affecting the PREC’s exemption eligibility must be reported within five days. 

• Additional Requirements: The controlling shareholder must ensure that the PREC doesn’t engage in activities requiring registration if it isn’t registered as a brokerage.