PERSONAL REAL ESTATE CORPORATIONS A LOOK AT THE POTENTIAL TAX - - PowerPoint PPT Presentation

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PERSONAL REAL ESTATE CORPORATIONS A LOOK AT THE POTENTIAL TAX - - PowerPoint PPT Presentation

Apr 05, 2024 380 likes •537 views

PROJECT PERSONAL REAL ESTATE CORPORATIONS A LOOK AT THE POTENTIAL TAX SAVINGS 778-847-6261 JEFF BORDEN, BBA CPA CGA PHONE CLIENT 1 Sole Proprietor Commissions Realtor 100% of income is personally taxable High income will be taxed

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SLIDE 1

JEFF BORDEN, BBA CPA CGA

PROJECT PHONE CLIENT

778-847-6261

PERSONAL REAL ESTATE CORPORATIONS

A LOOK AT THE POTENTIAL TAX SAVINGS

1

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SLIDE 2

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Commissions Realtor

Sole Proprietor

  • 100% of income is personally taxable
  • High income will be taxed at high rates
  • Income > $100k = 40.7% tax
  • Income > $200k = 47.0% tax
  • No income splitting available
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SLIDE 3

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Commissions Realtor

PREC

  • Control personal income to cover cost of living
  • Surplus income left in PREC not taxed at high rate
  • PREC pays small business tax of just 13%

PREC

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SLIDE 4

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Commissions Realtor

PREC

  • Income splitting is now available
  • Utilize additional family members' (age 18+) basic

personal exemptions and lower tax brackets to reduce total tax payable

PREC Spouse / Family

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SLIDE 5

Cost of implementation:

One-time Annual Incorporation & legal filings $1,500 $400 REC BC Annual License & E&O insurance (paid bi-annually) $665 Accounting fees: financial statements & corporate tax return ~ $1,250 $1,500 ~ $2,000

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$100k Comparison:

Sole Proprietor PREC Net income (revenue less expenses) $100,000 $100,000 Accounting, legal and extra licence & E&O $500 $2,000 Taxable income $99,500 $98,000 Personal income tax $22,000 $13,300 Corporate income tax

  • $3,185

Total after tax cash flow $77,500 $81,515 Additional free cash from incorporation $4,015

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* Based on salary draw of $73,500 to leave personal after tax income of $60,000 ($5k/mo)

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SLIDE 7

$150k Comparison:

Sole Proprietor PREC Net income (revenue less expenses) $150,000 $150,000 Accounting, legal and extra licence & E&O $500 $2,000 Taxable income $149,500 $148,000 Personal income tax $42,400 $13,300 Corporate income tax

  • $9,685

Total after tax cash flow $107,100 $125,015 Additional free cash from incorporation $17,915

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* Based on salary draw of $73,500 to leave personal after tax income of $60,000 ($5k/mo)

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Income Splitting - $100k:

Sole Proprietor PREC Net income (revenue less expenses) $100,000 $100,000 Accounting, legal and extra licence & E&O $500 $2,000 Taxable income $99,500 $98,000 Personal income tax $22,000 $2,600 Corporate income tax

  • $8,515

Total after tax cash flow $77,500 $86,885 Additional free cash from incorporation $9,385

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* Based on splitting income $32.5k salary plus $30k dividend to spouse to leave personal after tax income of $60,000 ($5k/mo)

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Income Splitting - $150k:

Sole Proprietor PREC Net income (revenue less expenses) $150,000 $150,000 Accounting, legal and extra licence & E&O $500 $2,000 Taxable income $149,500 $148,000 Personal income tax $42,400 $2,600 Corporate income tax

  • $15,015

Total after tax cash flow $107,100 $130,385 Additional free cash from incorporation $23,285

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* Based on splitting income $32.5k salary plus $30k dividend to spouse to leave personal after tax income of $60,000 ($5k/mo).

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Points to consider

  • Requires a new GST

number

  • The more income left in the

PREC, the larger the tax savings

  • The higher the income, the

larger the tax savings

  • Spouse and family

members may only own non-voting shares

  • Use a lawyer to set up the

PREC corporation

  • You can invest the retained

earnings the same as you would invest personally (ie: stocks, bonds, mutual funds), subject to RECBC restrictions:

  • Cannot invest directly

in real estate other than property used to operate real estate business

  • Section 85 tax election may

be required (if transferring existing assets to new corporation)

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Investing in Real Estate

  • Realtors have an information advantage and

enhanced access to information about real estate

  • Real Estate Council does not allow real estate to

be held within a PREC (conflict of interest concern)

  • Income from a PREC can still be used to invest in

real estate by setting up a Holding Company

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Investing in Real Estate

Realtor PREC Investment Property Holding Company Realtor PREC Investment Property

X

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Using a Holding Company

  • Holding Company can own non-voting shares of PREC

(use a separate class of shares)

  • PREC can pay inter-company dividends to HoldCo tax free
  • Cash in HoldCo can be invested without restrictions
  • Cash paid by dividend to HoldCo is permanently removed

from any business liabilities of the PREC

  • On retirement, PREC can be wound down, HoldCo

maintained to continue holding assets.

  • Additional set of incorporation, legal and accounting fees

(annual accounting fees lower than for an active operating company)

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Running your business

  • Financial records:
  • Record all business income and expenses
  • Keep separate bank accounts, use separate credit cards
  • this will make your record keeping much more efficient!
  • Mileage log - required! or CRA may disallow expenses
  • Monthly payroll reporting and remittances
  • RECOMMENDED: QuickBooks Self-Employed
  • Online access from anywhere
  • Mobile app with mileage tracking

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JEFF BORDEN, BBA CPA CGA

PROJECT PHONE CLIENT

778-847-6261

PERSONAL REAL ESTATE CORPORATIONS

A LOOK AT THE POTENTIAL TAX SAVINGS

15

JEFF BORDEN, BBA CPA CGA

CHARTERED PROFESSIONAL ACCOUNTANT 114-175 WEST 1ST STREET NORTH VANCOUVER BC. V7M 2N9

778-847-6261 JBORDEN@BORDENCGA.COM

ALWAYS GLAD TO ANSWER YOUR QUESTIONS: