Real estate agents have traditionally been unable to incorporate. However, several provinces now allow real estate professionals to form a personal real estate corporation (PREC).
Whether you can incorporate depends on your unique circumstances, business model, and how you plan on managing your business taxes and cash flow. If you are unsure, it is important to seek specialist advice before making the decision to incorporate.
What is a Personal Real Estate Corporation (PREC)?
A Personal Real Estate Corporation (PREC) is a type of business that a licensed real estate agent can incorporate to take advantage of the tax advantages that many other professionals have access to. These benefits include a reduced personal tax rate, the ability to defer income taxes and the ability to split income with family members.
However, while PRECs have many advantages, they aren’t right for everyone. You should talk to a financial expert before making the decision to incorporate and they’ll be able to recommend whether or not it is best for you.
One of the most significant benefits is the opportunity to defer income taxes. This can be especially helpful if you’re earning more than you need to live on. In fact, this can be particularly beneficial if you’re planning to start a family in the near future or if you want to save for your retirement.
Another benefit of incorporating a PREC is the ability to defer Canadian Pension Plan (CPP) contributions. This means that you can earn more money now and invest and save for your future on your own terms without having to pay CPP contributions on the extra income.
While this can be a great way to save on CPP, it’s important to understand that this will also have an impact on your tax bill in the future. This is because it’s likely that you will have to withdraw some of the excess revenue you’ve accumulated over time, which would then mean that you will be paying personal tax on this money.
For this reason, you should always take the time to understand your own financial situation and make sure that it’s a good fit for you before you decide to incorporate as a real estate agent. As a general rule, you should seek professional accounting and legal advice before starting your own business to ensure that you’re making the right decisions for your needs.
To get started with a PREC, you’ll need to file an application for a licence and a surrender form. The application can be submitted online in IRIS. The surrender form should be signed by yourself and your managing broker and a copy should be uploaded with the renewal submission of your individual licence.
How to Incorporate a PREC in BC
If you’re a real estate agent or broker in BC, you can incorporate your business as a PREC. It’s a great way to save on taxes and get more professional benefits from the CRA.
However, before incorporating your business, you should consider whether it’s right for you. This depends on how you run your business, how much you earn, and how you plan to handle and report your money.
You should also consider whether you can afford the costs and paperwork associated with incorporating your business. In many cases, the advantages outweigh the disadvantages, but it’s best to consult a business advisor before making any decisions.
One of the biggest reasons to incorporate your business is because you can claim tax deductions that are otherwise not available to a sole proprietor. These include items like health spending accounts, mortgage interest deductions, and more. In addition, if your business generates more than $200,000 in income per year, you can take advantage of the capital gains exemption.
Incorporating your real estate business can also be beneficial if you’re planning to sell it in the future. You can use the profits from your corporation to pay yourself or split them with your spouse and children.
Another benefit of incorporating your real estate business is that you can avoid paying tax on the income that comes in from estate dealings. This will save you money on your individual taxes and allow you to grow your business.
It’s important to note that you will still be responsible for your professional obligations, including TRESA compliance and RECO liability. Therefore, it’s vital that you have liability insurance.
Finally, it’s also important to keep in mind that incorporating your business will require a lot of legal and accounting documentation. This can add up to a significant investment and expense.
As a result, it’s essential to talk to a lawyer and accountant about the best option for your personal situation. There are a few pros and cons to incorporating your real estate business, so make sure you weigh all the options before making any decisions.
Taxes
If you are a real estate agent or broker in British Columbia, you may be able to incorporate your practice through a PREC. This is a great option for agents who are looking to reduce their personal tax burden, defer some of their income, and plan for the future.
One of the main benefits of incorporating your practice is that you will not be subject to personal taxes on any corporate income you earn. This can be a big tax savings for many agents, especially those who have high net incomes.
However, there are some things to keep in mind. First, you will need to ensure that the corporation is incorporated in Canada. This can be done through a lawyer or accountant. In addition, you will need to be a licensed real estate agent in BC and have a license to sell residential property.
You will also need to pay a one-time incorporation fee for the corporation and pay a licensing fee and E & O fees to the Real Estate Council of BC. The accounting fee will also be higher as you will need to deal with additional administrative tasks.
Another advantage of incorporating your business is that you will be able to defer some of your commission income. This can be useful for those who are in the midst of an active selling period and need to avoid taxes on their earnings at that time.
Finally, you will also be able to benefit from dividend distributions from the corporation. These can be a significant money-saver for real estate professionals who are not earning enough to support their lifestyle but still require some income to help them with living expenses.
In some cases, you will be able to split your PREC’s income amongst your immediate family members so that each person pays lower marginal tax rates on their share of the PREC’s income. This is a tax planning strategy that can be particularly beneficial if you are the sole provider for your family.
Lastly, you will be able to take advantage of several tax deductions that are available to landlords in all of Canada. This is a great way to lower your taxes and make more money in the long run.
Licensing
If you’re looking to become a real estate agent in BC, you’ll need to be licensed. Licenses are issued by the BC Financial Services Authority (BCFSA), and you’ll need to meet certain requirements in order to obtain one.
The first thing you’ll need to do is enroll in the Real Estate Trading Services Licensing Course through the University of British Columbia’s Sauder School of Business – Real Estate Division. This course will give you a comprehensive understanding of the industry, and teach you all the skills and knowledge you’ll need to be successful as a real estate agent.
Once you’ve completed this course, you can apply to become a licensed representative. You will need to submit an application form, along with your criminal record check and government-issued photo ID.
After submitting your application, you can expect to receive a response in approximately two weeks from BCFSA. This will include the results of your exam, which you must pass in order to be fully licensed as a real estate agent in BC.
You’ll also need to complete the Residential or Commercial Trading Services Applied Practice Course offered by the BC Real Estate Association (BCREA) on behalf of the Real Estate Council of BC. This course builds on the technical knowledge you’ve learned in the licensing course and will help you develop the practical skills you’ll need to be a successful real estate agent.
The next step is to select a brokerage and apply for your license with the Real Estate Council of BC. The managing broker of your chosen brokerage will need to sign the application and submit it to the council. Once your application has been approved, you can start working as a real estate agent in BC!
As a real estate agent in BC, you’ll have the opportunity to build a strong network of potential clients. You can use this to your advantage when negotiating deals. You can meet people you may not have met otherwise and connect with them on a more personal level.
You can also increase your chances of closing sales by preparing your listings properly. You’ll need to make sure that your home is priced appropriately, as this will attract more potential buyers. You can do this by removing any emotion from the listing, as well as researching comparable properties that are currently on the market. It’s also important to add value to your home with upgrades or repairs that will increase its appeal to potential buyers.
Among many other things, David A. Grantham is a contributing author to UmassExtension West Vancouver Blo. He is a renowned expert on real estate in BC.
Born in North Vancouver, Louisiana, Dr. Grantham grew up in Lower Lonsdale. He then went on to complete his business degree at the University British Columbia. As of this writing, Grantham has completed over 100 projects, including the development of a high rise building in Vancouver.
He is a husband, father, son, brother, and friend. He was a dedicated outdoorsman and enjoyed sports such as hunting, fishing, scuba diving, and snow skiing. His wife, Alison Grantham, and their two daughters survived him. He is survived by his wife Alison Martin Grantham and two daughters.