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Update

Wednesday, November 11, 2020

Ontario realtors can now operate their businesses through a personal real estate corporation (“PREC”). Effective October 1, 2020, the Government of Ontario passed regulations amending the Real Estate and Business Brokers Act (soon to be renamed the Trust in Real Estate Services Act, 2020). The first phase of regulatory changes created new rules to permit real estate brokers and agents to conduct their businesses and pay themselves through a PREC.

Realtors join lawyers, accountants, physicians and selected other professions permitted to operate their businesses and pay themselves through a PREC, which enables them to take advantage of tax deferral benefits and provides flexibility with remuneration and more estate and retirement planning options. Realtors should note, however, that a PREC requires up-front costs for incorporation, demands greater care with accounting and annual filings, and does not always provide limited personal liability to its shareholders.

Restrictions Imposed on PRECs

Similar to any other type of corporation, a PREC will be considered a separate legal entity from its shareholders. Specifically, the new regulations establish the following conditions on PRECs:

  1. the PREC must be established under the Business Corporations Act (Ontario);
  2. the sole director and officer of the corporation must be the controlling shareholder;
  3. the controlling shareholder must be employed by a brokerage to trade in real estate;
  4. all of the voting shares must be owned by a broker or salesperson;
  5. non-voting shares may only be owned by the controlling shareholder, by one of her or his family members, or by trustees in trust for one or more children of the controlling shareholder as beneficiaries; and
  6. there is no arrangement (such as a shareholders’ agreement) that restricts the ability of the sole director to operate the PREC.

According to the Province of Ontario, the second phase of regulatory changes is expected to roll out in late 2020 or early 2021, which will include updating and modernizing the Code of Ethics for real estate professionals, implementing disclosure requirements and updating the authority and powers of the Real Estate Council of Ontario.

Real estate brokers and agents should speak with their advisers when determining whether a PREC is right for them.

If you have any questions with respect to the matters discussed above, please contact Jonathan Born at jborn@wildlaw.ca, Michael Rennie at mrennie@wildlaw.ca, Alison Sinclair at asinclair@wildlaw.ca, or any other member of our Commercial Real Estate or Corporate & Commercial practice groups.