Incorporating as a Real Estate Agent in BC
Did you know that aside from starting a sole proprietorship, independent real estate agents may choose to start a corporation known as a Personal Real Estate Corporation, or PREC for short.
This article is an easy-to-understand guide explaining everything you should know to incorporate as a real estate agent in BC.
As a Real Estate Agent, Should I Incorporate in BC?
Yes, you should incorporate as a real estate agent in BC, as there are several advantages to doing so.
First, you gain credibility and decrease your liabilities as a business owner. Incorporating will give you tax advantages and support the stability of your business.
Real estate agent’s have the potential to be high earners, as your income increases so do your taxes. Incorporating as a real estate agent lets you take advantage of more flexible tax planning options.
Additionally, it can be easier to access funding when you incorporate as a real estate agent.
What Corporation Is Best for Real Estate?
The Personal Real Estate Corporation, or PREC for short, is typically the best corporation to use a Realtor.
A PREC is a personal corporation that real estate agents can form. It’s similar to the corporations available to doctors.
A PREC allows you to manage your professional finances. On top of this, you can enjoy the benefits of establishing a corporation through this program.
How Do You Incorporate in BC?
Here’s how to incorporate as a real estate agent in BC.
Consult With a Professional
The BC Financial Services Authority recommends consulting a professional.
We’ve helped dozens of Realtors incorporate. We make the process easier and ensure you meet all the legal requirements to setup a PREC. We can also advise you on which licenses and documents you need.
2. Lay the Foundation
After you decide to incorporate, you can choose an appropriate name for your business. The Real Estate Council must approve this name.
With a PREC, you can list your parents, children, or spouse as non-voting shareholders. In this case, you must gather personal details from them.
Draft your Articles of Incorporation. This document will outline your organization's structure, shares, and restrictions.
3. Send an Application
You’ll need to apply to the Registrar of Companies and receive your Certificate of Incorporation.
After this, you may register with the BC Financial Services Authority and receive your corporate number. Do this by signing in to the Integrated Regulatory Information System.
4. Check Your Licenses
The corporation and the controlling individual must each have a license, and you renew both licenses every two years.
Our tip is to ensure the expiry date on your corporation’s license matches the expiry on your individual license. Doing this will allow you to manage the fees better.
Remember to choose the correct expiration date during the PREC application. Additionally, communicate your needs with the licensing authority to get aligned expiration dates.
If for some reason you receive a PREC license with a different expiry from your individual license, you can undergo amendment for $50.
5. Open a Bank Account
Open a corporate bank account for your business.
With this bank account, you can separate the corporation’s income from yours. This allows you to defer a portion of your taxes by keeping the money in the corporation’s bank.
6. Follow Through With Upkeep
Finally, set up your accounting and bookkeeping. There are annual filings, tax planning, and legal compliance to consider.
If you have non-voting shareholders under your PREC, you must hold regular meetings with them.
You should also maintain and renew your licenses each year.
What Are the Benefits of Incorporating as a Real Estate Agent?
Incorporating as a real estate agent in BC has several advantages.
Tax Deductions
Incorporating your business means you separate your income from the business’s earnings. This can decrease the amount of taxes you pay.
Since corporations often have lower tax rates than personal incomes, you can choose to keep part of the profit in the corporation’s bank. Meaning, you only pay taxes on the amount you withdraw from the company.
Say your corporation earns $400,000 per year. In BC, the small business tax rate is 2%, and the federal tax rate is 9%. If you took all those earnings from the corporation, your personal tax rate would be 20.50% provincially and 33% federally.
Keeping money in the business allows you the option to defer the income until you earn less. You could also reinvest that income back into your business to grow it.
2. Protection
An incorporation can reduce your overall liability.
It allows you to separate your personal assets from the business. This lets you protect assets that may otherwise be exposed in the event that a creditor comes after them.
3. Credibility
Having a corporation makes your business more credible in the eyes of your customers. Compared to sole proprietorships, clients may prefer an established and trustworthy corporation.
4. Income Splitting
Incorporating as a real estate agent lets you list your family members as non-voting shareholders. In short, you may split your income among family members.
When done right, income splitting may become another way to save on tax payments.
5. Business Continuity
A corporation provides a stable structure for the business.
The business can still go on in case something happens to you. It’s easier to transfer or sell a corporation compared to a sole proprietorship.
What Are the Possible Limitations of Incorporating as a Real Estate Agent?
Incorporating as a real estate agent in BC has its challenges and limitations. Here are some to look out for.
Administrative Needs
Corporations have a lot more admin compared to sole proprietorships.
The bookkeeping and records maintenance may be time-consuming. You may have to hire an accountant or lawyer to help you with the paperwork, leading to higher costs.
2. Legal Restrictions
The legal protection provided by the PREC isn’t absolute. If you break the law or in cases of professional negligence, you can still be held personally liable.
3. Limited Tax Advantages
The tax advantages you get from incorporating your business depend on your circumstances. For instance, commissions and vehicle expenses might not be eligible for tax deductions.
A good accountant can help you understand which tax advantages apply to your corporation.
4. Business Limitations
According to section 10.6(1)(e) of the regulations, you can only conduct business by providing real estate services as a corporation.
You may not do any other type of business. Plus, only the controlling individual can provide his services to clients.
Why Should You Use a Lawyer When Incorporating?
If you think starting a corporation sounds complicated, consider hiring a lawyer to help you with the process.
Below are reasons why you should use a lawyer when incorporating.
Drafting Assistance: A lawyer can draft all the documents you need. This ensures you’re meeting all the legal requirements of establishing a corporation.
Law Adherence: During incorporation, you’ll encounter various legal mandates. Using a lawyer lets you adhere to the Real Estate Council regulations.
Application Efficiency: With a lawyer, you’ll receive help in every step so your business gets set up correctly. Having one means your application is efficient, there are fewer mistakes, and you get peace of mind!
FAQ’s
Can Realtors Incorporate in Canada?
Yes. Like doctors and lawyers, realtors and brokers can also be incorporated in Canada. Doing so means you can take advantage of some of the tax reductions for corporations.
If you want to incorporate as a real estate agent, you may register a PREC.
What Does PREC Stand For?
PREC stands for Personal Real Estate Corporation. It’s a corporation that individual realtors and brokers can establish for various perks.
You may register a PREC instead of starting a sole proprietorship.
What Is the Primary Purpose of the Real Estate Corporation?
The PREC separates your business from your assets. This means that if there’s legal action against your company, you can protect your personal belongings.
Moreover, with a PREC, you can separate your income tax from the business’s tax. It’s advantageous since corporate tax rates are lower than individual tax rates.
How Does PREC Work?
The PREC works by allowing real estate agents and brokers to establish a corporation. When this happens, only the money you withdraw from the corporation is subject to income tax.
You may keep the rest of your earnings in the corporation’s bank account and use it for investments.
Final Thoughts
Here’s a summary of everything you should know about incorporating as a real estate agent in BC.
As a real estate agent, you can and should incorporate in BC.
Incorporating as a real estate agent lets you take advantage of tax deductions. It also protects your personal assets by separating your business.
The best type of corporation for realtors is the PREC or the Personal Real Estate Corporation. Through it, you can split your income for better tax planning and ensure your business’s continuity.
There are some limitations to the PREC. Administrative needs can become complicated, and the process of obtaining them is more difficult.
A lawyer can do all the paperwork for you. Having a professional’s assistance makes the process more efficient and ensures you follow all the regulations!
