Establishing and Operating a Personal Real Estate Corporation in British Columbia
Incorporating a Personal Real Estate Corporation, also known as PREC, allows licensed real estate professionals access to the advantages of incorporations, such as favourable taxation rates and liability protection. PRECs are similar to other professional corporations used by dentists, lawyers, doctors and accountants and must adhere to the Real Estate Council of British Columbia’s guidelines.
Reatlors who are considering establishing a PREC should thoroughly read the following information, as well as the Real Estate Services Regulation.. They are also encouraged to discuss the subject with their managing broker.
One of the most crucial points for realtors considering creating a PREC is the type of activities permitted under the Regulation.. Subsequently, RECBC has produced the following policy to lead real estate agents in this regard:
Policy Regarding ancillary services of a PREC:
Under section 10.6(1)(e) of the Regulation, a personal real estate corporation may not “conduct any business other than the provision of real estate services and ancillary services directly associated with the provision of real estate services”. In general, dictionary definitions and judicial consideration agree that the term “ancillary” describes something that is secondary to, and supportive of, a primary entity.
Accordingly, a PREC is restricted to providing real estate services and those services which are subordinate to, and exist to support, real estate services. A PREC cannot provide services whose primary purpose is not to facilitate or further the provision of real estate services. For these reasons, a personal real estate corporation may not, for example,
- Trade in stocks or bonds, other than modest trading in stocks and bonds that constitute a capital gain (as opposed to income from business) and not so extensive that it is regarded as the business of the personal real estate corporation,
- Hold real estate beyond that required by the personal real estate corporation for the provision of real estate services, or
- Engage in the business of real estate development.
For the above reasons you may wish to consider establishing a holding company to own the shares in your PREC. A holding company will enable you to flow surplus cash out of your PREC into another corporation controlled by you wherein you can make corporately held investments into private shares, a stock portfolio, real estate investments, etc. Inserting a holding company subsequent to the incorporation of a PREC is a much more expensive pathway, as this will generally require a tax rollover transaction under Section 85 of the Income Tax Act.
For any questions or concerns you may have about permissible uses of a PREC, please contact us directly.
Choosing a Name
Section 10.3 of the Real Estate Services Regulation dictates that the legal title of a personal real estate corporation must involve the following, but nothing other than:
- The legal name, an identifiable short version of the business’s legal name, or the licensee title or name of the governing person
- Following by the suffix “personal real estate corporation.”
Advertising of personal real estate corporations must comply with RECBC’s advertising requirements.
When a real estate agent or broker decides that the personal real estate corporation model is the best fit for their business, the way remuneration is paid also changes. Under the Personal real estate corporations, the compensation for rendering real estate services moves from the brokerage to the personal real estate corporation, not the real estate professional. You should discuss this with your mortgage broker.
Sections 9-1, 9-2, and 9-3 of the rules outlined by RECBC allow real estate professionals to provide certain services without the legislation impacting them such as rental property management on a rental property that the real estate professional owns, or that is owned by their family, as well as providing strata management services with respect to a strata corporation in which the real estate professional is an owner of a strata lot.
These exemptions however are NOT available to realtors operating under an incorporated PREC. PREC realtors may only provide rental property management on a property in its name through the brokerage with which the personal real estate corporation is established.
Closing A Brokerage
Real estate professionals wanting to resign their licence with their current brokerage in connection with a personal real estate corporation, will be required to abide by the guidelines set out in RECBC’s Licensing Guidelines.
Applying For A Licence Both the personal real estate corporation and the governing individual are required to be licensed. This means, two licences are to be maintained once the personal real estate corporation licence is established.
If you wish to modify any details on your licence, you must likewise apply to enact the same change on the personal real estate corporation licence.
Renewing Your Licence
If the individual controlling licence plus the personal real estate corporation licences expire on the same day, then they both must be renewed with the RECBC at the same time.
Real estate agents and brokers can expect to receive an email from the RECBC around eight weeks prior to their licence expiration date notifying them that their licence renewal application is due.
If you no longer wish to be licensed as a personal real estate corporation, follow these steps to terminate the licence:
- Notify your managing broker that you wish to terminate the personal real estate corporation licence. Complete the Surrender of a Personal Real Estate Corporation Licence application and tender it to the governing office with a payment of $50 for your licence revision.
- Your account will be revised and will reflect the update in the governing body’s online portal.