Setting up a PREC in Ontario: the rules, the timing, and what it actually changes

What a PREC is — and what it can never do

A personal real estate corporation is an ordinary Ontario business corporation that is permitted to receive your remuneration from your brokerage — nothing more. Since October 2020, when the Trust in Real Estate Services Act (TRESA) changes took effect, Ontario salespersons and brokers have been able to direct commissions to a PREC instead of taking them personally. The corporation holds no registration of its own, and it is not allowed to trade in real estate, advertise listings, or hold itself out to the public as anything but the entity that gets paid.

That constraint is the whole design. You remain the registrant: your name goes on the advertising, your registration and continuing education stay personal, and your duties to clients do not move an inch. What moves is the money. Commission that used to land on your T1 at marginal rates above 50% can instead sit in a corporation paying roughly 12.2% on its first $500,000 of active income under the small business deduction.

The conditions a PREC has to meet

Ontario's regulation sets out a short, strict checklist, and every item has to hold for the entire time the PREC is being paid — not just on incorporation day.

Because the corporation must never present itself as trading, we keep PREC names neutral. Building your personal brand into the name is possible, but the name cannot suggest the corporation itself sells houses.

Timing the switch

Incorporate once your commissions consistently exceed what you spend, because retained profit is the only thing a PREC really rewards. If you draw every dollar out as salary or dividends, Canada's integration rules put you roughly back where a sole proprietor started — after paying for a T2 return, a minute book, and annual filings.

The cutover date matters more for realtors than for most businesses because income arrives deal by deal. Remuneration your brokerage pays before the PREC arrangement takes effect is personal income; deals paid after it belong to the corporation. Agents with a strong spring pipeline often incorporate over the winter so the heavy closings land inside the PREC, and we pick a corporate year-end that fits that cycle instead of defaulting to December 31.

RECO and your brokerage, at a high level

Three pieces of paper make the arrangement work, and none of them is a RECO registration for the corporation. You need articles of incorporation that satisfy the checklist above, a written agreement among you, the PREC, and your brokerage covering how remuneration is paid, and written notice to RECO with the corporation's name and address before commissions start flowing to it.

Everything else about your practice continues unchanged. Your registration, your insurance through RECO's program, your brokerage's commission splits and deal fees — all of it stays exactly where it was. The PREC is a payment destination, not a new participant in your deals.

After the articles: HST, payroll, and the books

The PREC is a new legal person, so it needs its own CRA accounts before the first commission arrives. Real estate commissions are HST-taxable and nearly every active agent is far past the $30,000 small-supplier threshold, so the corporation registers its own GST/HST (RT) account immediately and the brokerage pays commission plus HST to the PREC. Open a payroll (RP) account when you start paying yourself salary, and expect a T2 corporate return every year, profitable or not.

Two habits protect the structure. Keep personal spending out of the corporate account, because draws that are neither salary nor dividends become shareholder loans or taxable benefits. And keep the deduction records — marketing, auto logs, staging, referral fees — inside the PREC's books from day one. If your practice touches the US, whether that is referral fees from American brokers or clients buying in Florida, the withholding and reporting questions live on our cross-border tax page for realtors.

Source: Real Estate Council of Ontario.