Ontario allows realtors to form personal real estate corporations

Real estate professionals in Ontario can now operate their business through a personal real estate corporation (PREC).

Under the new regulation, PRECs must be owned solely by a real estate registrant. Real estate salespeople and brokers will be able to form and use PRECs to receive and accumulate income from real estate activities. They can also use additional advertising terms, such as "real estate agents" and "realtors" to reflect the services they provide.

“The real estate sector is an important part of life here in Ontario for individuals, families, and the overall economy,” Minister of Government and Consumer Services Minister Lisa Thompson said in a statement. “These changes will go a long way toward fostering a healthy, open, and competitive real estate marketplace for consumers and businesses.”

The Ontario government announced the first phase of regulatory changes to the Trust in Real Estate Services Act, 2020 (TRESA) on October 1. TRESA replaced the Real Estate and Business Brokers Act, 2002 after passing Third Reading in the Ontario legislature with unanimous consent on February 27.

The second phase of the regulatory changes, expected later this fall, will include public consultations with consumers and real estate professionals that focus on enhancing ethical standards in the sector. Measures will include updating and modernizing the Code of Ethics for real estate professionals, implementing disclosure requirements to beef up consumer protection, and updating the authority of the Real Estate Council of Ontario (RECO).

RECO CEO Michael Beard says the new TRESA regulation is a “great benefit to the industry” and “a continuation of the important work to modernize the legislation governing real estate professionals in Ontario.”

The Toronto Regional Real Estate Board (TRREB) welcomes the move that puts Ontario in step with provinces like British Columbia, Saskatchewan, Manitoba, and Alberta. “We are excited that realtors in Ontario are finally being treated fairly in this regard,” says TRREB president Lisa Patel.

The Ontario Real Estate Association (OREA) calls the development a milestone for the province’s 80,000 realtors. It estimates that PRECs will save Ontario realtors $14 million annually in deferred taxes and create 300 jobs in the province.

Other advantages afforded by PRECs include a lower corporate tax rate and the ability to defer taxes. Realtors can retain real estate income in the PREC to reinvest in business activities and benefit from the Lifetime Capital Gains Exemption for shares of a qualified small business corporation. Operating through a PREC also allows a realtor to own and manage other investment and business activities along with his or her core activities in real estate trading.

Depending on each realtor’s circumstances, the downsides to operating through a PREC include an incorporation fee and higher accounting fees.

"OREA urges all Members to seek out independent accounting and tax advice when deciding whether or not to incorporate,” the association said in a statement.  

Jean Lian is Head of Communications and Brand Marketing with HomeLife Realty Services Inc. in Toronto. Contact Jean at marketinghomelife@gmail.com.