PREC Setup in Ontario: A Realtor's Step-by-Step Guide

Since October 2020, Ontario realtors have been able to incorporate as a Personal Real Estate Corporation (PREC). For high-earning agents, the tax deferral can be substantial — but the rules are tight, and many realtors set them up wrong and lose the benefits. Here's how to do it right.

What Is a PREC?

A PREC is a private corporation that earns the commission you would otherwise earn personally. Your brokerage pays the corporation, the corporation pays corporate tax (around 12.2% in Ontario on the first $500,000 of active business income for CCPCs), and you draw a salary or dividends from the corporation as needed.

Who Should Consider a PREC

PRECs make financial sense when you earn substantially more than you spend. If you net $200,000+ in commission and only need $80,000 to live on, the remaining $120,000 sits in the corporation taxed at the small business rate — about half the personal rate at that income level. The deferred tax can be reinvested or distributed in lower-income years.

If you spend most of what you earn, a PREC may cost more in accounting fees than it saves. The breakeven typically lands around $150,000 of net commission, but it depends on personal circumstances.

The Setup: Step by Step

1. Confirm RECO eligibility — only registered salespersons and brokers qualify
2. Choose a corporate name that complies with RECO naming rules (must include the realtor's legal name)
3. Incorporate provincially in Ontario through the Ministry of Public and Business Service Delivery
4. Apply to RECO for a PREC certificate before earning any commission through the corporation
5. Notify your brokerage and update your commission agreement
6. Register for HST if your gross commission exceeds $30,000 over four consecutive quarters
7. Open a dedicated corporate bank account — never commingle personal and PREC funds
8. Set up bookkeeping and a year-end T2 filing process

Common Mistakes to Avoid

• Issuing dividends to family members who didn't legitimately work in the business — TOSI (tax on split income) rules will reverse the benefit
• Drawing more salary than necessary — defeats the purpose of deferral
• Forgetting HST registration — the CRA backdates and charges interest
• Mixing personal expenses through the corporation — the CRA disallows them and may reassess
• Skipping a CPA at year-end — DIY T2 returns are error-prone and the savings shrink fast

What It Costs

Setup runs $1,500–$2,500 (incorporation, RECO certificate, initial advisory). Ongoing accounting — bookkeeping, HST returns, payroll, year-end T2 — typically $3,000–$6,000 per year depending on volume. Most realtors earning over $200,000 in commission recover these costs in tax savings several times over.