Exciting Opportunity for Real Estate Agents in OntarioBy sedoo
Our law firm has such a strong bond and relationship with real estate agents and their brokerages and as such we have been front and centre in supporting both sides of the industry with navigating through the exciting new opportunity for real estate agents to incorporate a Personal Real Estate Corporation (PREC) as of October 1, 2020 pursuant to the provisions of the Trust in Real Estate Services Act, 2020 (TRESA).
Essentially a PREC is a form of business incorporation that could, with the right tax advice, provide significant tax advantages to real estate agents, which might include a lower corporate tax rate, tax deferral opportunities, and income splitting opportunities. Therefore, it is essential for a real estate agent to consult with an accountant for any tax planning advice as part of the process of retaining our firm to incorporate and organize a PREC.
As lawyers, we work in consultation with the real estate agent’s accountant to ensure that the criteria from TRESA for setting up a PREC are complied with, which includes the following:
- The corporation is incorporated or continued under the Ontario Business Corporations Act;
- All of the voting shares of the corporation are legally and beneficially owned, directly or indirectly, by the licenced real estate agent (Controlling Shareholder);
- The sole director of the corporation is the Controlling Shareholder;
- The president, being the sole officer of the corporation, is the Controlling Shareholder;
- Each non-voting share of the corporation is,
- legally and beneficially owned, directly or indirectly, by the Controlling Shareholder,
- legally and beneficially owned, directly or indirectly, by a family member of the Controlling Shareholder, or
- owned legally by one or more individuals, as trustees, in trust for one or more children of the Controlling Shareholder who are minors, as beneficiaries.
It is imperative for any real estate agent considering a PREC to know that: (i) prior to a PREC receiving any remuneration from a brokerage, a tri-party agreement must be signed between the PREC, the Controlling Shareholder and the brokerage employing the Controlling Shareholder, which covers all aspects of the relationship between those three parties; and (ii) unlike other corporations that may offer its shareholders protection from any personal liability due to the actions of a corporation, a PREC will not protect real estate agents against liability for professional negligence.
Please feel free to contact any one of our lawyers should you have questions about this exciting opportunity for real estate agents.
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|David H. Korman is a Partner at Kormans LLP. His practice areas include residential and commercial real estate transactions, commercial leasing and private and institutional lending. You can reach David at email@example.com.
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