Realtors in Ontario now have the opportunity to incorporate with the passing of Bill 145, Trust in Real Estate Services Act, 2020, and can now earn an income through Personal Real Estate Corporation (PREC). With the new rules and regulations in place, realtors can now benefit from PREC which allows them to defer personal tax and pay a corporate tax rate instead. With fewer taxes, you retain more of your income. Income that can be invested or used to give you that early retirement you’ve been dreaming of.
Real estate agents who have set up PREC for their business benefit from better tax rates and deferral opportunities. For some realtors, their tax rates have reached as high 53.53% for an income that is above $220,000. Agents with PREC will now have the means to access the Ontario small business tax rate, which is 13.5% on the first $500,000. Income that is above the $500,000 mark will be taxed at a rate of 26.5%. Going down this path can give agents a tax reduction of up to 38.53%, a more favourable tax rate.
Another benefit of incorporating is tax deferral opportunity. Realtors who are incorporated can now defer their tax payments by leaving a share of their earnings in the corporation and only being taxed once those funds have been withdrawn.
Income splitting is beneficial due to the further tax savings it brings. Income splitting is a process within a corporation that allows the corporation to pay a fair salary to a family member. By utilizing family members such as your spouse, parents or children, in the lower tax brackets, you can bring down your family’s overall tax burden by income splitting using your corporation.
Going down the incorporation road is an intensive process and can become quite cumbersome. Costs incurred while establishing PREC are deductible expenses against your income and we at SRJ Chartered Professional Accountants are here to provide you with the services and guidance you need.
General Real Estate Tips and Suggestions
Consult with a professional accountant before starting the process of incorporating your business. We highly recommend that you seek the advice of a professional real estate accountant and ask all the questions you need answers too. You’ll also end up receiving a lot of answers to questions you may have not known to ask. Book a consultation with SRJ Chartered Professional Accountants who provide accounting for real estate agents and consulting for real estate investors.
Keeping Organized – It is absolutely vital to keep track of all your finances and receipt. An easy task but one quite often overlooked. Keeping a track of your receipts and organizing them should be a part of your business to-do list. Whether you use a spreadsheet or an app that helps keep it all in one place, it is to your benefit to have your receipts tracked on an ongoing basis vs at year-end. Having everything organized and in place can help if the CRA chooses to audit you. Providing them with a quick response with all requested documents can work to your benefit.
Have a separate business account – Have a separate business account that is only used for your commission income and expenses. Not only does this minimize the risk of an audit but it can also give you a better understanding of your business’s finances. Having that separate account can also prevent the CRA from looking into all of your personal activities.
GST/HST – A reminder that the GST/HST you collected on your commissions does not belong to you. Real estate professionals often end up spending that money and then have to pay a lot of taxes or end up dealing with penalty charges or interest on late payments. All GST/HST needs to be remitted to CRA. Better to set aside then to incur those costs. Consult with SRJ Chartered Professional Accountants on all GST/HST rules and regulations. We provide an in-depth look at how to manage your GST/HST, not miss any GST/HST deductions and manage all your other finances.
For more information, tips and suggestions contact SRJ Chartered Professional Accountants located in Toronto and Mississauga. We are your real estate tax accountants assisting you with real estate accounting needs. We look forward to guiding you through the process of incorporating your business. Contact us at 647-725-2537 or send an email to firstname.lastname@example.org.
Frequently asked questions.
Can Realtors incorporate in Ontario?
Realtors will soon be allowed to incorporate in Ontario.
To see if incorporating is an option for you, please contact SRJ Chartered Professional Accountants for a consultation.
Should real estate agent agents incorporate?
Incorporating comes with a lot of tax benefits, deferral opportunities and income splitting options. For a better understanding if this is right for you, please contact SRJ Chartered Professional Accountants for a consultation.