Realtor tax services: PREC returns, HST on commissions, instalments for lumpy income

A PREC is two tax returns pretending to be one

The tax case for a Personal Real Estate Corporation is deferral: commission income the brokerage pays into the PREC is taxed at Ontario's combined 12.2% small business rate on the first $500,000, instead of personal rates that pass 50% at the top bracket. The saving only exists on money you leave in the corporation — every dollar you pull out gets taxed again on your T1. So the real work is deciding how much comes out, and how.

Salary is deductible to the PREC, creates RRSP room, and builds CPP, but requires payroll remittances all year. Dividends are simpler and skip CPP, but build no retirement room. Most agents land on a blend we revisit annually, because a 40-deal year and an 11-deal year should not be paid out the same way. One honesty note: Ontario lets family members hold non-voting PREC shares, but the TOSI rules usually tax dividends to a non-working spouse at the top rate — we model it before anyone counts on splitting.

HST rides on every commission — and on assignments

Real estate commissions are taxable at 13% HST in Ontario, and almost every licensed agent blows past the $30,000 small-supplier threshold in a quarter or two, so registration is not optional for long. The brokerage's trade record sheets show the HST collected on each deal; your side is remitting it net of input tax credits on desk fees, franchise fees, board dues, marketing, and staging — all of which carry HST you can recover.

Assignments are where agents get hurt, on their own deals and their clients' deals. Since May 7, 2022, every assignment sale of a new or substantially renovated home is subject to GST/HST, full stop. Since 2023, the residential property flipping rule deems profit on a home — or an assignment right — held under 365 days to be fully taxable business income, with no principal residence exemption. And the GST/HST new housing rebate requires that the buyer, or a close relation, intend the home as a primary residence; an agent who claims it on an investor pre-con purchase, or lets a client do so, is setting up a clawback with interest. Investor-landlords belong in the New Residential Rental Property rebate instead.

Vehicle and marketing: the two audit magnets

Vehicle and promotion costs are the biggest deductions on most agents' returns, which is exactly why CRA looks at them first. The rule that decides everything is the mileage log — without one, your business-use percentage is a guess CRA is free to reject. Showings, open houses, and client meetings count; the commute to your brokerage does not.

We would rather tell you a deduction is dead on a discovery call than defend it in a review. The ones above cover most of what crosses our desk from agents.

Instalments sized for income that arrives in bursts

Once your net tax owing tops $3,000 in the current year and either of the two prior years, CRA expects quarterly instalments — and its reminder notices are computed from last year's income, not this year's market. After a hot spring, that formula can demand instalments for a repeat performance that a rate hike already cancelled. The fix is the current-year option: we project this year's actual income each quarter and pay on that instead, which is safe as long as the projection holds.

The PREC has its own instalment track once corporate tax passes $3,000, and annual HST filers owe quarterly HST instalments at the same threshold — three parallel schedules we manage as one calendar. If part of your income is US referral fees from American brokers, or you are walking Canadian clients through Florida purchases, the withholding and reporting questions live on our cross-border tax page for realtors — the Canadian instalment math above still applies to all of it.