Realtors across Ontario were over the moon when Bill 145 passed on October 1, 2020 finally allowing them to incorporate.  At Curtis-Villar we were watching for this announcement and as soon as it came through we were on the phone telling our clients to run to the laywer’s office.   Here are some of the benefits of a PREC:

1. Control your personal income

Up until October 2020, all the profits from your business were taxed on a business statement on your personal income tax return. This resulted in very high tax bills each year as any income over $220,000 is taxed at 53.5% in Ontario.   Now that you are allowed to incorporate you become an employee and earn a salary (that you set) from your PREC.  The taxes on this salary are paid each month to CRA so you don’t have massive tax bills come April each year. 

2. Corporate income is taxed a low rate

As discussed above, many realtors have been paying tax in excess of 50% each year.  This makes it very difficult to grow your business when you carry the burden of paying hundreds of thousands of dollars to CRA each year. Not any more!  When your real estate business is making more than you need to live off of, the true benefits of incorporating come in.  The profit left in your PREC up to $500,000 each year is taxed at 12.2%.  This is an incredible tax savings of almost 41%!  More simply for every $50k you tax within your PREC you will save $20,400 in taxes

3. Build Wealth

The greatest advantage of PREC we are seeing with our Realtors is the ability for them to build wealth at a much faster rate.  Due to the tax savings incurred it is allowing them to have down payments for new properties faster, contribute to an investment portfolio on a regular basis and not worry about HST and tax payments to CRA.  Common feedback we are hearing is that they are going to be able to retire 10 years sooner than originally planned.

4. Declare Dividends rather than salary

Real estate professionals who are self-employed are required to remit both the employee and employer portion of their Canada Pension Plan (CPP) contributions.  With a PREC, however, you have the opportunity to pay yourself either a salary or dividends. If you pay yourself a salary, you’ll still need to remit CPP and taxes each month. But if you pay yourself a dividend, CPP contributions aren’t required, leaving you with excess cash to invest in other income-producing investments. That said, you should be mindful of the impact of paying yourself a dividend and the availability of claiming personal child care expenses and making RRSP contributions.  We can help you determine if a salary or a dividend is best for your situation.

If you would like further information on any of this points or help in putting any of them in place, please reach out to us.  We are here to help.