On October 1, 2020, the Government of Ontario announced the first phase of regulatory changes affecting the Real Estate and Business Brokers Act ("REBBA") which will soon be renamed as the Trust in Real Estate Services Act, 2020 ("TRESA"). These changes address a number of important issues in Ontario's real estate industry. Most notably, the changes allow real estate professionals to structure their business using a Personal Real Estate Corporation (a "PREC").
Personal Real Estate Corporations
As a result of the amendments, real estate brokers and salespeople regulated by TRESA are now permitted to conduct their business and pay themselves through a PREC. For many years, a wide array of regulated professionals have provided services through personal corporations and enjoyed tax planning and other benefits associated with personal corporations. Real estate brokers and salespeople are now among those permitted to use a corporation as a means to structure their business. Of course, there are a number of benefits to incorporation and real estate brokers and salespeople should analyze these with their advisers. However, when considering the suitability of a PREC, real estate brokers and salespeople should be aware of the restrictions that apply to this type of corporation. We summarize the most notable restrictions imposed on PRECs as follows:
- No federal corporations: PRECs must be incorporated under Ontario's Business Corporations Act;
- Controlling the Board of Directors: The corporation may only have one director and that director must be the controlling shareholder (a broker or salesperson);
- Officer of the Corporation: The corporation may only have one officer and that officer must be the controlling shareholder (a broker or salesperson);
- No non-registered voting shareholders: All of the voting shares of the corporation must be owned (legally and beneficially) by a broker or salesperson;
- Non-voting Shareholders to be Family Members: Non-voting shares of the corporation may only be owned by the controlling shareholder, by one of its family members, or by trustees in trust for one or more children of the controlling shareholder who are minors as beneficiaries;
- Inability to Limit Sole Director's Powers: There is no agreement or other arrangement that restricts or transfers in whole or in part the powers of the sole director to manage or supervise the management of the business and affairs of the corporation.
For real estate brokers and professionals considering the benefits of incorporating a PREC, understanding the regulatory environment in which it will operate is crucial.
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