UPDATE: Incorporation For Realtors In Ontario
At Kutner Law LLP we have been tracking progress relating to the ability of real estate agents to form a personal real estate corporation (“PREC”) in Ontario. As explained in our previous blog post, Bill 145 (Trust In Real Estate Services Act, 2020) has been made into law, and it was recently announced that the Ministry of Government and Consumer Services (the “Ministry”) was planning on bringing the regulation into force on October 1, 2020. The Ministry posted draft regulations and are currently in a consulting period which will last 22 days and finish on September 8, 2020. Following the consultation period the Ministry will review the comments and commence the implementation of the regulations.
The proposed regulations would set out the criteria to describe a PREC. For example, the regulations provide that a single controlling individual (i.e. the real estate professional) owns all voting shares and the controlling individual is the sole director and officer. The controlling individual is registered as a broker or salesperson. It also appears that family members of the controlling individual will be allowed to own non-equity (non-voting) shares in the PREC. This is similar to what we have seen for dentistry professional corporations and medicine professional corporations. The PREC will not be allowed to carry on the business of trading in real estate other than providing the services of its controlling individual to the brokerage that employs the individuals. An additional requirement is that there will be a written agreement between the PREC, the controlling individual and the brokerage governing the relationship between the brokerage the PREC and its controlling individual.
As previously stated by Kutner Law LLP in a previous blog post on the matter, the tax rate for all profits earned in the PREC that are not paid out to shareholders will be approximately 12.5%, as compared to a personal tax rate of up to 53% if the same profits were earned personally.
The Ministry is currently seeking feedback from agents and brokers about the anticipated costs and/or benefits of incorporation—responses from professionals in the industry can be submitted here. The regulations are subject to change during the consultation period before they are brought into force. As this progresses Kutner Law will endeavour to keep you apprised of any developments.
This blog post if for informational purposes only and is not to be construed as legal advice.