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Daniel L. Kiselbach
By Daniel L. Kiselbach and Cheryl Teron
British Columbia is a initial Canadian range to concede particular real estate licencees to form personal real estate companies (PREC). Under a Real Estate Services Act and a Real Estate Services Regulation, Realtors can take advantage of a advantages of union in a demeanour identical to dentists, accountants and lawyers.
The taxation advantages of incorporating a PREC include:
1. Tax deferral – Licensed Realtors who beget some-more commissions than compulsory for their needs might keep gain within a PREC. Taxable income of a PREC is taxed in a year warranted during a low corporate taxation rate of 13.5% on a initial $500,000 of taxable income and 26.5% thereafter. These rates revoke in 2012 to 11% and 25% respectively. This compares agreeably to a taxation rate for people of 43.7% on taxable income over $127,021.
2. Tax resources by income splitting – The PREC might occupy and compensate income to family members such as a spouse, common-law partner or child for services performed. More importantly, a PREC might emanate a apart category of “dividend-sprinkling” shares to family members (or a trust for family members) that concede dividends to be paid to a family members though grant of bid by a family members. Income warranted by family members might be taxable during reduce extrinsic rates than if warranted directly by a Realtor, that would outcome in a reduced altogether family income taxation bill.
3. Deductions for business expenses – Deductible business losses are not singular to a volume of elect income warranted or a other stipulations imposed on sale losses of consecrated employees. Rather, a PREC’s income for taxation functions is a profit, that is generally a sales commissions reduction reasonable business expenses.
However, there are some disadvantages. There are authorised and taxation considerations that can be pitfalls for a unwary, including:
Cheryl Teron
1. Personal services business
– A protected Realtor who is a voting shareholder of a PREC and who would be an worker of another entity though for a existence of a PREC would be deliberate to be handling a “personal services business” (PSB) with inauspicious income taxation consequences. A PSB is not entitled to a favoured reduce corporate income taxation rates, and a deductibility of losses is generally singular to arrangement paid and a cost of advantages and allowances supposing to a incorporated employee, certain losses of offered property and negotiating contracts, and authorised losses to collect accounts for services rendered.
2. Attribution and “kiddie tax” – Any PREC that includes family members contingency be determined with a detrimental manners in mind. For instance, a detrimental manners could charge division income incurred by a family member to a Realtor in certain resources where a Realtor transfers property to a PREC (including a Realtor’s existent business). As good dividends paid to children before a year in that they spin 18 on shares of a PREC will be theme to taxation during a tip extrinsic taxation rate, reduced usually by a division taxation credit (effective taxation rate of 33.71% on non-eligible dividends). This is as a outcome of a manners for apart income, that is ordinarily referred to as a “kiddie tax”. In this way, opportunities for income bursting with teenager children are reduced.
Realtors should also consider:
1. Costs of incorporating a PREC embody authorised costs (approximately $3,500 depending on such factors as a inlet of a incorporation, share structure and resources to be transferred).
2. The PREC will need a credentials of financial statements and an additional taxation return, generally achieved by an accountant.
3. The PREC contingency comment for payroll source deductions for a employees and Harmonized Sales Tax for commissions charged.
4. The Realtor, as a solitary officer of a PREC, might be privately probable for any source deductions or HST that a PREC fails to remit.
5. A PREC is generally compulsory to be purebred for WCB.
6. An additional city business permit and real estate permit is compulsory for a PREC.
7. A apart bank comment for a PREC is required.
A Realtor might be intent and paid by a PREC to yield real estate services if a following mandate are met:
1. The Realtor is a solitary voting shareholder, executive and boss of a PREC (and there are no other officers).
2. Each non-voting share is owned by possibly a Realtor or certain dependent people – a spouse, common-law partner or child (the “family”), a house whose shares are beneficially owned by a Realtor or his or her family, or a trust, all of a beneficiaries of that are a Realtor or his or her family.
3. Each of a Realtor and a PREC have a real estate license.
4. The protected Realtor is “engaged” (employed or behaving as an eccentric executive for a PREC).
5. Any other persons intent by a PREC are not licensees (such as assistants).
6. The PREC’s usually business is a sustenance of real estate services and directly compared subordinate services.
7. The Realtor and a PREC approve with a Real Estate Services Regulations.
8. The authorised name of a PREC includes zero other than a authorised name, a brief form of a authorised name or a licensee name of a Realtor and a tenure “personal real estate corporation”.
9. The PREC contingency be protected to a same brokerage as a Realtor and contingency be intent by a same brokerage to yield real estate services.
Incorporating a PREC is a good plan for minimizing income taxation for a Realtor who can keep income in a PREC or can advantage from income splitting. However, a PREC is not right for everyone. Realtors should deliberate with competent authorised warn in sequence to establish either they are in a position to take advantage of a PREC structure in their particular circumstances.
Daniel L. Kiselbach and Cheryl Teron are partners during a Vancouver bureau of Miller Thomson. For Kiselbach, phone 604-643-1263; email dkiselbach@millerthomson.com. For Teron, phone 604-643-1286; email cteron@millerthomson.com. The authors acquire comments or questions. This essay provides a ubiquitous outline only, does not set out all advantages, disadvantages and mandate for a PREC and is not to be used or relied on as authorised advice.
Article source: http://www.remonline.com/home/?p=10938
