For Ontario realtors, the Personal Real Estate Corporation (PREC) is a new opportunity for saving and deferring taxes. As of October 1, the ability to start using the PREC started. In episode 2 of our Talking Real Estate with Peter and George video series, George Dube and Peter Cuttini discuss why a PREC may be beneficial for realtors.
Episode 2: Personal Real Estate Corporations – Your Guide to Saving and Deferring Taxes
George:
Good day, and thanks for joining us. Today is August 26th 2020, and you’re now listening to George and Peter. And we’re going to be specifically today talking about for Ontario realtors, the ability for them to incorporate very, very shortly. So very time pressing for many people, but in terms of the George and Peter side of things, my partner Peter, largely he takes care of our clients from, if you will, and accounting, bookkeeping, what we call compliance perspective, kind of administering the practice. And myself, I tend to be a little bit more on the tax planning side of things with our clients and behind the scenes answering tax questions with the team.
Peter tries to keep me behind the scenes as much as possible of course.
Peter:
Yes I do.
George:
To reach out to Peter or myself, I think you’ll probably find email addresses tend to be the best. Peter, I’ll let you give your email address there.
Peter:
Thank you, George. My email address is pcuttini@bdo. That’s P-C-U-T-T-I-N-I @bdo.ca.
George:
And on my side it’s gdube@bdo.ca. So G-D-U-B-E@bdo.ca. So I guess no matter where we’re at in Ontario, and the practice that Peter and I have a certainly one that’s national, but today we’re focused on Ontario given the nature of the topic. But regardless of where we’re in Ontario, we’re going to be working with the realtors throughout, and the brokers, and as well drawing in some of our team members, including for example, George Simpson, as the situations require that. But Peter and I are going to first kind of talk a little bit about what this incorporation process looks like, and practically speaking, what you can do for yourselves.
So in terms of starting off, when can we actually do this? So you may be aware that earlier this year the province did, in theory, allow for or approved the actual ability to use a corporation as a realtor. And this has certainly been a long time coming. At times we were questioning whether it was ever going to truly materialize, but here it is. And they said subject to drafting of regulations to actually implement, you’re good to go. Just very, very recently, a couple of weeks ago, not even, we were given the draft regulation. So the final rules have not yet been created. The target date for implementation now is October 1st, 2020. So it’s now time to get going if you are a realtor or know of realtors, please start reaching out. Our calendars are already beginning to be populated with meetings to help our clients get started, and we would love be talking with more.
In terms of why the excitement from the corporate side, so from a pure tax perspective, we have an ability to potentially save realtors approximately, I’m just rounding off the numbers, but approximately 40% of the taxes. And what I mean by that is, as a real rough number, a maximum tax bracket in Ontario can be about 53 and a half percent, whereas the corporate bracket at its lowest point is a little over 12%. So now all of a sudden that’s a huge spread. And that 40%, so think of it as you have an extra $100,000 that can go through that corporation, that was $40,000 in saved taxes that now you have you. Worst case scenario is you’re only going to save about 25%. So even on $10,000, that’s $2,500 in your jeans. Nothing to sneeze at by any means. The more the merrier. And maybe you’re not quite at the size where you think that you need to have the corporation in place, but maybe we should still be talking in terms of when that should come about.
Other aspect from a tax planning perspective is simply with that corporation there can be a little bit more of an ability to potentially split income with other family members, and that in and of itself can provide additional savings beyond what we’re seeing on the initial tax rate difference. So again, it can be a huge, huge increase to your effective salary, just being able to save a chunk of cash in that corporation.
Peter:
Also, for the October 1st target date, the reason you want to get this done sooner than later is we may able to defer some of your income from this year. So where you’re not ending up paying taxes on it to approximately March of 2022, as opposed to paying tax April 2021. That could be for some people who have a lot of deals closing in the fall, a very big number.
George:
And further to that, perhaps obvious, but just in case, come October 1st doesn’t mean we can just instantly set up a corporation and everything’s taken care of there. There’s still some process involved here. And from a pure tax perspective, as a realtor, you are going to sell your practice. You transferred it to a corporation, and there can be tax implications to that. So it’s something that we want to be able to talk about to see if there’s any tax issues there. There are certainly ways of removing any tax problems, but it has to be done properly. There’s certainly a process involved, and it’s going to involve your legal team as well. There’ll be coordination between the accountants and the lawyers. And this isn’t something that, in other words, is going to be able to be an instant process. It’s going to take a little bit of time to get everything implemented.
And then on the backend side, and Peter’s going to talk about it a little bit later, is making sure you’re ready from an administrative perspective, the bookkeeping perspective, et cetera. So again, we may thinking that October 1st is a long time from now, but it’s such a short period of time. We’re going to be, I expect Peter, and maybe you have a different view, over the next couple of years, really helping out quite a number of realtors. The bulk of which hopefully will be done by say spring 2021. But the sooner the better. As Peter said, why not start saving money today? Why wait?
Peter:
Yeah. In a nutshell, what I’d suggest is don’t do this yourselves. Use a professional. There’s so many things that potentially could go wrong and you may not … Don’t go online and set up a corporation. You won’t get the income splitting opportunities, you may trigger additional tax if it’s done wrong. Don’t do it. Come see us. We can guide you through the process, we’ll work with your lawyer, get this set up and set up properly.
George:
And maybe Peter, you can talk a little bit about the bookkeeping and how we’re going to be able to really hold our clients hands with regards to this.
Peter:
Yeah, absolutely. Let’s not kid ourselves. Nobody likes to do bookkeeping, unless you’re a bookkeeper. You guys have got busy lives. You’re out there doing deals. You don’t need to be worrying about the bookkeeping. We at BDO have a great offering to help you with that. We use QuickBooks online, where you can have access to the information and we have access to the information at the same time. Everything goes through the cloud. We can go into your bank accounts and download all the information we need on a monthly basis to do the bookkeeping. If you’ve got miscellaneous receipts, scan them in your phone, upload them to the portal, you never have to worry about that again. You don’t even need to keep that receipt after. As long as it’s scanned in properly [inaudible 00:08:28] later, all of a sudden you’re looking at it and going, “Hey, I don’t remember what this is,” or you forget stuff. Let us help you take that pressure off you. Don’t don’t do it yourselves. It’s not your strengths. Make sure that it’s done properly.
George:
Maybe kind of just moving forward from that is, in seeing that you now have this bookkeeping process that is available for you, so again, you’re doing your business and let others take care of that aspect, because from the experiences Peter and I have most business owners and certainly realtors and brokers are no different as a general comment, they’re really, really good at doing what they’re good at. Which usually excludes bookkeeping. And even for myself, I don’t like doing my own bookkeeping. I would much rather somebody else take care of that, because I’ve got better things to do.
Peter:
Absolutely.
George:
Even if that’s sitting in the backyard watching the grass grow, watching the kids play with Frisbee, or whatever it happens to be, it’s for most of us going to be better than actually doing it. But on the same token, we’ve got access to the information and Peter and his team can really help guide people in terms of helping make some business decisions with that information, which can also include budgeting for taxes, for example, so that you’re not caught off guard in terms of making tax installments or payments, so that when it comes time to pay the piper, it’s already been taken care of.
Peter:
Yep. And also remember this corporation going to be a separate legal entity. It’s going to have a separate tax return, it’s going to have separate financial statements. It may not have a December year end, it may have an off calendar year end. But just remember it is a separate legal entity, and you do have to file all the necessary tax returns with the government on an annual basis. You need to make sure you’re doing this right. And we’ll work with your broker to make sure we get all the records from your broker so you don’t even have to worry about the entry of that. We can take care of your entire back office for you.
George:
I think the critical point to what Peter and I are talking about now is really reach out to us, please. Reach out to the advisors so we can start the process of getting you set up, one, from that tax perspective, making sure that it’s been done properly and not inadvertently actually triggering taxes instead of saving taxes. And then your backend systems are ready to go. So that again, you’re not trying to scrape together tax returns and information next year when you want to hit the ground running, as compared to try playing catch up at the end of the day.
Key part is please email us, and we will be providing some updates to this when the final regulations are introduced. Again, these are draft regulations, so there could be some changes. And later Peter and I will begin describing some of the more, I’ll call it different options available, in terms of being able to incorporate and have different family members involved in how they should be involved. But key is, please do reach out. And Peter and I look forward to being able to talk to you. Thank you.
Peter:
Take everybody. Have a great day.
To contact Peter or George you can email pcuttini@bdo.ca or gdube@bdo.ca.
Tags: PREC, realtors
