Personal Real Estate Corporation

What is a Personal Real Estate Corporation in Ontario?

A Personal Real Estate Corporation (PREC) is a single-shareholder corporation through which a registered Ontario real estate salesperson or broker can earn commission income. PRECs became available October 1, 2020 under amendments that initially landed in REBBA and carried forward into TRESA. The structure lets registrants access the lower corporate small-business tax rate, smooth income across years, and split limited amounts of income through non-voting shares held by family members. The registrant must remain the controlling shareholder.

PREC ownership rules

Ontario Regulation 536/20 sets specific ownership requirements:

• The controlling shareholder must be the registrant whose registration the PREC operates under
• Family members may hold non-equity, non-voting shares (commonly used for income-splitting)
• The PREC's name cannot mislead the public into thinking it is itself a brokerage
• The PREC must have a written agreement with the brokerage acknowledging the structure
• Commission cheques flow to the PREC, not directly to the registrant

The brokerage must be aware of the PREC and direct payments accordingly. RECO does not register the PREC itself — only the underlying registrant.

When a PREC makes financial sense

PRECs cost roughly $1,500 to $3,000 per year in extra accounting and corporate filing fees. The breakeven point depends on the registrant's other income and personal spending needs, but most accountants suggest the math starts to work once net business income clears about $100,000 per year. Below that threshold, the corporate tax savings often do not justify the recurring overhead.

The benefit increases with income. A registrant with $250,000 of net commission income can defer significant tax inside the PREC by paying themselves a modest salary or dividend and leaving the rest at the corporate small-business rate (currently around 12% on the first $500,000 in Ontario, vs personal rates that can exceed 50% at the top).

Income splitting through non-voting shares

A PREC's family-member non-voting shares were once a meaningful income-splitting tool. The federal Tax on Split Income (TOSI) rules introduced in 2018 narrowed this materially. Income paid to family members must now meet specific tests (active engagement in the business, reasonable compensation for actual work) to avoid TOSI's punitive top-rate tax. Talk to an accountant before structuring family shares; the obvious play is no longer obvious.

Where this appears in your Humber program

PRECs are introduced in Course 5: Getting Started as part of business setup decisions for new registrants. The ownership rules, the tax-rate framework, and the controlling-shareholder requirement are exam-tested. Continuing education on tax planning revisits PREC strategy as TOSI rules evolve.

Frequently asked questions

How do I set up a Personal Real Estate Corporation in Ontario?

Setting up a Personal Real Estate Corporation in Ontario involves four steps: (1) incorporate a corporation provincially or federally with a compliant name and the registrant as controlling shareholder, (2) execute a written PREC agreement with your brokerage acknowledging the structure, (3) notify RECO of the PREC arrangement, (4) update banking, HST, and accounting so commission flows to the corporation. Most registrants engage an accountant or lawyer for the incorporation given the regulatory specifics.

Who can be a shareholder of a PREC in Ontario?

The controlling shareholder of a Personal Real Estate Corporation must be the registrant whose registration the PREC operates under, holding all voting shares. Family members of the registrant — spouse, children, parents, siblings — may hold non-equity, non-voting shares for income-splitting purposes. Non-related parties cannot be shareholders. The registrant must retain control at all times.

What are the benefits of a Personal Real Estate Corporation?

The main benefit of a Personal Real Estate Corporation is access to the small-business corporate tax rate (around 12% in Ontario on the first $500,000 of active business income), allowing the registrant to defer personal tax by retaining earnings in the corporation. Secondary benefits include limited income-splitting through non-voting family shares (subject to TOSI rules), planning flexibility for retirement and major purchases, and modest reputational signalling.

Is a PREC worth it in Ontario?

A Personal Real Estate Corporation is generally worth it for Ontario registrants earning net business income above roughly $100,000 per year, where the corporate tax savings exceed the $1,500 to $3,000 annual incorporation overhead. Below that threshold, the math typically doesn't work. First-year registrants are usually better off staying personal until income stabilizes and the long-term picture is clear.

Practice this topic

ExamAce covers PREC structure, ownership rules, and the tax-planning framework in the Course 5 question bank, with TRESA-era updates in the CE annual update bank.