Real estate agents may soon be joining lawyers, healthcare professionals, accountants, architects, engineers and other regulated professionals to operate their practices through a professional corporation. Bill 104, otherwise known as the Tax Fairness for Realtors Act, 2017, is rapidly passing its way through the Ontario legislature having passed its first and second readings. It is expected that a third reading will take place very soon, and subject to any amendments by the Standing Committee on General Government, it may finally become law.
If enacted, real estate agents may finally be able to incorporate a “personal real estate corporation” to reduce their tax burden and to gain access to lower small business tax rates. The proposed Act will amend the Business Corporations Act (Ontario) and the Real Estate and Business Brokers Act, 2002 to permit a “personal real estate corporation” to be registered as a broker or salesperson, and allow it to receive payment of a commission or other remuneration from a brokerage. Currently, real estate salespersons may only receive their commissions and other remuneration as personal income and for which they are taxed at the higher personal tax rates. Payment of commissions into a corporation may also let a salesperson defer taxes that may have been otherwise payable on personal income to the extent that these amounts are left in the corporation and not paid out as dividends.
As an added bonus, the proposed legislation will also allow a real estate salesperson to issue non-equity shares in the “personal real estate corporation” to their immediate family members or a corporation of which all equity shares are owned by that salesperson or their immediate family members. Doing this will open opportunities for the salesperson to income split with other family members who may have access to lower tax rates.
It is expected that the proposed legislation will be passed in the very near future especially since it is supported and co-sponsored by a member of each provincial political party. Although similar legislation has failed to be enacted on two previous occasions, it certainly looks like three times will be the charm for real estate agents. The proposed legislation is also not new to the landscape given that six other provinces already have similar legislation and Ontario is really just bringing itself into line with the others.
Given the circumstances, all real estate salespersons with significant income should prepare themselves to incorporate into these personal real estate corporations and work with their lawyers and accountants to take full advantage of the soon-to-be corporate structure.
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