PREC Prepared By Mark Hunter, CA, CPA Agenda 1. The Personal Real - - PowerPoint PPT Presentation
Personal Real Estate Corporation PREC Prepared By Mark Hunter, CA, CPA Agenda 1. The Personal Real Estate Corporation (PREC)? 1. What is a corporation? 2. What is a PREC? 3. How does a PREC work? 4. What requirements must be met
1. What is a corporation? 2. What is a PREC? 3. How does a PREC work? 4. What requirements must be met in order for a PREC to receive payments from the brokerage?
the company is a public company. Most companies in Canada are private companies
dividend
non‐voting
meets certain criteria prescribed in the Regulations to the Real Estate And Business Brokers Act, 2002 (“REBBA”)
you by the brokerage
wage of the salesperson
voting shares
managing the business
The brokerage can pay a PREC when:
The salesperson who is the controlling shareholder of the PREC can receive remuneration from a PREC when:
remuneration received from the brokerage for the salesperson
its controlling shareholder to the brokerage
the brokerage
estate from any source other than the PREC or the brokerage
property of the clients in connection with trading in real estate
brokerage that governs the relationship between the brokerage, the PREC and the controlling shareholder where the PREC agrees:
under the Act and regulations, or interfere with the controlling shareholder in their performance of the shareholder’s duties under the Act and regulations
brokerage and broker of record to ensure the controlling shareholder is complying with the shareholder’s duties under the Act and regulations
whether the conditions set out in the section are met.
Finally, the controlling shareholder must, in writing, provide the registrar with:
PREC Salesperson
100% Voting shares
The Brokerage Purchaser pays commissions to the brokerage The brokerage pays commissions to the PREC The PREC pays wages or dividends to the salesperson
Individual Tax
income is $220,000
Corporate Tax
tax brackets:
Income Level $100,000 $220,000 $300,000 Personal Tax $25,000 $80,850 $123,700 Corporate Tax $12,200 $26,840 $36,600 Tax Deferral $12,800 $54,010 $87,100
The tax deferral is only good if you leave the after tax income IN the Company
Corporately Earned Personally Earned Commissions Earned $100,000 $220,000 $300,000 $100,000 $220,000 $300,000 Corporate Tax $12,200 $26,840 $36,600 N/A N/A N/A Profits retained in Corp $87,800 $193,160 $263,400 N/A N/A N/A Personal Tax $12,950 $54,650 $87,950 $25,000 $80,850 $123,700 Net Cash paid as dividend $74,850 $138,510 $175,450 $75,000 $139,150 $176,300 Effective Tax Rate 25.15% 37.04% 41.52% 25.00% 36.75% 41.23%
When an individual sells their shares in a qualifying company they pay tax on the capital gain in excess of $883,384. In other words, an individual selling a qualifying company won’t pay tax on the first $883,384 of capital gains. At the top personal tax rate, that’s a savings of $236,500. This benefit is only available to individuals who sell their shares in a qualifying company. What does this mean to you? If, and only if you can sell the PREC and the PREC meets certain qualifications
Corporation Fair Market Value = $500,000 Salesperson
100%
Assuming the Corporation qualifies and the Agent has no
sell the company the tax savings would be close to $100,000. NOTE: The accumulation of investments inside the corporation could jeopardize the available capital gains deduction.
Personal Real Estate Corporation (“PREC”) Salesperson
100% Voting shares
Spouse
100% non‐voting shares
The Regulations to the Real Estate And Business Brokers Act, 2002 allow family members of the salesperson to own non‐voting shares Family members are defined to include a spouse, children or parents of the salesperson As a shareholder, the family member can receive dividends from the company This splits income between family members and taxes income at lower tax rates However, generally speaking, the Income Tax Act will prevent income splitting with family members who are not actively working in the business. Any amounts paid to a family member who is not actively engaged in the business will be taxed at the top personal tax rate.
up
the PREC pays you a wage
The creation of a PREC requires the services of a tax accountant and a lawyer.
practice valuation
the salesperson’s practice to the PREC
and sale agreement between the salesperson and the PREC
salesperson and PREC
This is a complicated area. There are two ways to pay yourself from a PREC:
mark@hunter‐cpa.ca www.hunter‐cpa.ca
Hunter CPA Professional Corporation is a boutique accounting practice that provides its clients with the following services:
This presentation is meant only to be used as a general guide to the legislation outlined herein. It is the responsibility of the reader to determine the applicability of the outlined legislation to their specific
provided herein with their tax and legal advisors. Hunter CPA Professional Corporation takes no responsibility for the tax, legal or other impact to anyone relying on the information contained herein. Changes to tax law occur frequently. The changes might be applied on a future date, immediately, or,
as it currently stands including government administrative and judicial interpretation. If the law or its interpretation changes, any comments provided may not be relevant. The writer or the Firm are not responsible for updating the advice herein for subsequent changes in tax law or the interpretation thereof. This presentation remains the property of Hunter CPA Professional Corporation and cannot be used