By Melissa Nowak and Linda Woo
Until recently, a real estate person selling in Ontario, was not permitted to incorporate nor take advantage of the tax savings which are currently available to salespeople operating in other provinces in Canada – six other provinces to be exact. However, after much adieu, Bill 145, a bill to amend the Real Estate and Business Brokers Act, 2002 (“REBBA”) to permit personal real estate corporations in Ontario, received royal assent on March 4, 2020. This bill will come into force on a day to be named by proclamation of the Lieutenant Governor, unsubstantiated rumor has it on or about October 1, 2020.
While the industry anxiously awaits this proclamation, here are the 5 things real estate salespeople need to know before incorporating a professional real estate corporation:
- Equity Shares of a Personal Real Estate Corporation. The real estate salesperson, defined as an individual, must own all the equity shares in the corporation. This person must also meet all the qualifications under REBBA, be registered with a brokerage, and must be employed by a brokerage to trade in real estate.
- Non-Equity Shares of a Personal Real Estate Corporation. Thenon-equity shares of the corporation can be owned by the individual who also owns the equity shares of the personal real estate corporation, an immediate family member of this individual, or a corporation in which all the equity shares are owned by this individual or the individual‘s immediate family members.
- Name of Personal Real Estate Corporations. The name of the personal real estate corporation must include “Personal Real Estate Corporation” of “Société personnelle immobiliere” and comply with all the rules governing the naming of Ontario professional corporations.
- Business of the Personal Real Estate Corporation. A personal real estate corporation may only carry on business in the profession of real estate trades.
- Tax Advantages. One of the main tax advantages of incorporation is the ability to defer taxes because corporate tax rates are lower than personal tax rates. Currently, real estate salespeople can pay tax on income earned personally at tax rates as high as 53.53% for income in excess of $220,000. However, income earned through a personal real estate corporation is subject to tax at a corporate tax rate between 12.2% and 26.5%. Because the real estate salesperson will only pay personal income tax on amounts drawn out of the corporation as either a salary or dividend, the salesperson can defer personal tax as long as the funds are retained inside the corporation. Other benefits include the potential for income splitting and the flexibility to receive dividend or salary income from the personal real estate corporation.
So, what next? Real estate salespeople who are considering a personal real estate corporation should seek professional tax and legal advice. BDO Canada can provide strategic tax advice for individuals and corporations. Houser Henry & Syron LLP can assist with the incorporation process and ensure that the legal structure of the corporation aligns with the business objectives of the real estate salesperson.
Once the law comes into force, both Houser Henry & Syron LLP and BDO Canada would be happy to assist real estate salespersons to take advantage of this long-awaited legislation.
Please feel free to contact the Melissa Nowak or Linda Woo with any questions or concerns.
Melissa Nowak, Senior Associate at Houser Henry & Syron LLP Contact: 416-860-8028 or email@example.com
Linda Woo, Partner, Canadian Tax, Transaction Tax (CPA, CA) at BDO Toronto. Contact: 416-865-0200 or firstname.lastname@example.org
Since 1934, Houser Henry & Syron LLP has provided legal services to Canadian and foreign private businesses, helping them deal with complex legal challenges to grow and to manage risk successfully. We help our clients with mergers and acquisitions, commercial real estate, reorganizations, shareholders disputes and agreements, commercial agreements, employment issues and financing. We also pride ourselves in practising in Plain English.