On March 4, 2020, Bill 145 received royal assent and amended and replaced the Real Estate and Business Brokers Act with the Trust in Real Estate Services Act (TRESA). The most significant amendment ushered in under TRESA is that real estate professionals are now permitted to carry on their business through their own Personal Real Estate Corporations, which presents some advantageous opportunities.
As of October 1, 2020, a real estate professional can receive remuneration from a brokerage directly to a corporation controlled by them, which has some significant tax advantages versus receiving remuneration directly as an individual. As a real estate professional it is important to understand the rules and conditions when incorporating a Personal Real Estate Corporation and how it might impact your business.
A Personal Real Estate Corporation (PREC) must be incorporated in Ontario or continued into Ontario. It can be an existing corporation that you ‘convert’ into a PREC. Unlike other professional’s corporations, there are no restrictions in the corporation’s articles that restrict the business that the PREC can carry on. In addition, again, unlike other professional’s corporations, there are no naming restrictions. The corporation does not have to contain the words ‘Personal Real Estate Corporation’ and does not have to be limited to only ‘the sale of real estate’. The foregoing lack of restrictions allows for maximum flexibility for real estate professionals and how they use their corporations.
One registrant – One corporation. The PREC can only have one registrant holding all of the voting shares of the corporation and all of the officer and director positions. This is fundamental to a PREC because it allows the PREC to avoid the extra step of applying to the Real Estate Council of Ontario (RECO) to be its own registrant.
Other professionals must apply to have their professional corporations registered and recognized by their governing bodies. Not having to register a separate entity with RECO saves time and money for the real estate professional. No application fee and no renewal fees. All that is required is an email notice to RECO with the name and address for service of the PREC.
3. Payment of Remuneration
There are several conditions that are required to be met in order for a PREC to be exempt from registration with RECO and therefore capable of receiving remuneration. A particularly important one is a written agreement between the real estate professional, the brokerage and the PREC. This agreement will govern the relationship between the brokerage, the PREC and the real estate professional and it must be in place prior to the brokerage paying any remuneration to the professional. It will contain language that requires the professional to certify that the PREC is properly incorporated and organized, properly registered with RECO and that it has met all the conditions for exemption. Lastly, it will confirm that the brokerage is relying on the accuracy of those statements to be able to pay remuneration directly to the PREC.
After many years of hard work and lobbying by the Ontario Real Estate Association (OREA) and others, the typical red tape that is associated with the incorporation process for other professionals has been avoided, making incorporation even more attractive for real estate professionals.
There are many advantages to having a professional corporation and it is important that all of the requirements are met in order for you to benefit from incorporation. With our extensive experience we can help you decide if a Personal Real Estate Corporation is right for you and ensure that you understand and meet the conditions set out in TRESA. Should you have any questions, please do not hesitate to contact me at [email protected].