If you’re an incorporated realtor in Ontario, Alberta, or British Columbia, your PREC may be helping you save on taxes. But if you’re also using it to hold rental properties, deposits, or investment assets, you could be walking into a compliance and tax trap.

The structure you choose today could affect your taxes, regulatory standing, and long-term wealth.

 Let’s break down the facts and help you avoid the most common (and costly) mistakes we see at Concept Accounting & Advisory Professional Corporation.

What Is a PREC—and Where Realtors Get It Wrong

 

A Personal Real Estate Corporation (PREC) is a structure that allows licensed real estate professionals to incorporate and receive commission income through a corporation. This allows access to the small business tax rate—currently 12.2% in Ontario (rates vary by province).

But here’s where it gets risky:

Across all provinces, including Ontario, Alberta, and BC:

• A PREC must be controlled by the licensed individual.
• It must only earn income from that individual’s licensed real estate services.
• It cannot operate any other business—including investment or rental activity.

In Ontario, this is outlined in Ontario Regulation 536/20 (RECO). BC and Alberta have similar requirements through their own real estate regulatory bodies.

Can CRA Penalize You for Mixing Income in a PREC?

 

The Canada Revenue Agency (CRA) treats your PREC like any other corporation under the Income Tax Act.

So, technically, your PREC can hold investments—but here’s why you shouldn’t:

If your PREC earns passive income (e.g. rent, interest):

• You may lose access to the Small Business Deduction if passive income exceeds $50,000 (per ITA Section 125(5.1)).
• Investment income is taxed at over 50% at the corporate level.
• You risk audit exposure and added complexity in your corporate filings.
• Most importantly, you may violate real estate licensing rules.

Just because CRA allows it doesn’t mean your real estate regulator does.

The Smarter Structure: Use a Holding Company

 

At Concept Accounting & Advisory Professional Corporation, we help realtors across Canada set up compliant, tax-efficient structures.

Best Practice: PREC + Holdco Model

PREC (Your real estate sales corp):

• Earns active income (commissions)
• Pays the small business tax rate (e.g. 12.2% in Ontario)
• Distributes intercorporate dividends tax-free to Holdco (ITA Section 112)
• Remains RECO/CREA/RECA-compliant

Holdco (Your investment corp):

• Holds properties, pre-construction deposits, and market investments
• Earns passive income (rental, interest, capital gains)
• Accesses Capital Dividend Account (CDA) and Refundable Dividend Tax on Hand (RDTOH) for tax planning

This structure separates your business income from your investments and:

• Preserves your PREC’s low tax rate
• Avoids regulatory violations
• Allows you to grow your portfolio tax-efficiently

How Much Can You Pay Yourself Tax-Free?

You may have heard about withdrawing $40,000 in tax-free dividends—but that number isn’t universal.

The truth:

• The amount you can withdraw without triggering personal tax depends on your total income, dividend type, and provincial tax brackets.
• In Ontario, Alberta, or BC, if you have no other income, you might withdraw ~$34,000–$40,000 in non-eligible dividends tax-free—but this is a planning exercise, not a rule.
• Work with a CPA to calculate annually and avoid missteps.

We Help Realtors Stay Compliant and Save on Tax

 At Concept Accounting & Advisory Professional Corporation, we specialize in helping realtors and small business owners across Ontario, Alberta, and British Columbia.

Whether you’re:

• Just starting with a PREC
• Growing a real estate team
• Expanding into rentals or commercial real estate

We’ll help you:

• Design the right structure (PREC + Holdco)
• Stay compliant with CRA and your real estate regulator
• File accurate, optimized corporate taxes
• Manage your bookkeeping and dividend planning
• Build long-term wealth through smart tax strategy

Need guidance? Speak with an experienced advisor today to explore your options and ensure your financial strategy aligns with your goals.