If you’re a real estate professional in Ontario or Toronto, you might have heard about Personal Real Estate Corporations (PRECs) and wondered whether incorporating is right for you. In this blog post, we’ll cover everything you need to know about PRECs, including their benefits and potential drawbacks.
What is a Personal Real Estate Corporation (PREC)?
A Personal Real Estate Corporation (PREC) is a corporation that’s owned and controlled by a licensed real estate professional. In Ontario and Toronto, real estate professionals can incorporate their business and operate it through a PREC. PRECs offer several benefits, including tax advantages and liability protection.
Benefits of Incorporating as a Real Estate Professional
- Tax Benefits: One of the main advantages of incorporating your real estate business is the tax benefits. With a PREC, you can take advantage of lower corporate tax rates and defer personal income taxes by leaving money in the corporation. You can also pay yourself a salary or dividends, which are taxed at a lower rate than personal income.
- Liability Protection: By incorporating your business, you limit your personal liability. If someone sues your business, your personal assets are protected, and your liability is limited to the assets in your corporation.
- Credibility: Incorporating your real estate business can make you more credible in the eyes of potential clients. Clients may view you as more professional and trustworthy, which can lead to more business.
Drawbacks of Incorporating as a Real Estate Professional
- Increased Costs: Setting up and maintaining a PREC can be expensive. You’ll need to pay legal fees to set up your corporation and ongoing accounting fees to maintain it.
- Administrative Burden: As the owner and director of your corporation, you’ll have additional administrative responsibilities. You’ll need to keep detailed records and file annual reports with the government.
- Limited Access to Tax Deductions: There are certain tax deductions that are only available to sole proprietors. If you incorporate, you may lose access to some of these deductions.
Conclusion
Incorporating your real estate business through a Personal Real Estate Corporation (PREC) can offer significant benefits, including tax advantages and liability protection. However, there are also potential drawbacks, such as increased costs and administrative burdens. Before making a decision, it’s essential to speak with a tax professional who can help you understand the pros and cons and determine whether incorporating is right for you.
In summary, if you’re a real estate professional in Ontario or Toronto and are considering incorporating your business, a PREC can be a viable option. We hope this post has given you a better understanding of PRECs and their benefits and drawbacks.