What a PREC is
A Personal Real Estate Corporation is a provincial corporation that holds a registered real estate agent's licence and receives the agent's commission income on behalf of the individual. The agent remains personally licensed with the provincial regulator; the corporation is the legal entity that contracts with the brokerage and receives the commission cheque.
PREC eligibility is set province-by-province. Enabling legislation now exists in Ontario (under the Trust in Real Estate Services Act, 2020[4]), British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick, and Newfoundland and Labrador. Each province sets its own requirements: who can be a shareholder, how the corporation is named, what the relationship between the agent and the brokerage looks like, and what the corporation may and may not do beyond receiving commissions. Provincial regulator rules are independent of the CRA tax mechanics described below.
A PREC is, for federal tax purposes, a Canadian-controlled private corporation (CCPC) like any other small private company[5]. The federal corporate-tax mechanics that apply to a small private business apply to a PREC in the same way.
A sole proprietor real estate agent, by contrast, has no separate legal entity. Commission income flows directly to the individual and is reported as self-employment income on the T1 personal return at form T2125. There is no corporate filing, no corporate tax return, and no distinction between business income and personal income other than the deductible-expense line on T2125.
How commission flows differently
The mechanical difference between the two structures shows up most plainly in how a single commission cheque is treated.
Sole proprietor
The brokerage pays the commission to the agent directly. The full amount lands as self-employment income in the agent's personal hands and is taxed in the year it is received at the agent's personal marginal rate — combined federal plus provincial. Allowable T2125 expenses reduce the taxable amount, but the after-expense net is taxed personally that same year, whether or not the agent actually spends it.
PREC
The brokerage pays the commission to the corporation. The amount enters the corporation as business revenue. The corporation pays its own tax on the after-expense net at the corporate rate — and only the portion the agent extracts to themselves personally (as salary or dividend) is taxed at personal rates that year. Amounts retained inside the corporation are taxed only at the corporate rate that year.
The federal small business deduction reduces the corporate rate on the first $500,000 of active business income earned by a CCPC[2]. Combined with provincial corporate rates, the effective rate on small-business-deduction-eligible income approximates 12% in many provinces (the exact figure depends on the province, since provincial corporate rates vary)[1]. Income above the small business deduction limit, or that does not qualify, is taxed at the higher general corporate rate[1].
Tax deferral — the core mechanical benefit
The structural feature most often cited as the reason for a PREC is tax deferral. Deferral is timing, not elimination. Income retained inside the corporation is taxed at the corporate rate that year; the personal tax owing on the remaining balance is deferred until the agent extracts the funds in a later year as salary or dividend. When extracted, the personal tax becomes payable. The total tax paid across corporate-then-personal layers approximates the tax that would have been paid as a sole proprietor in the year of earning — this is the principle of tax integration. The benefit is in the timing.
Worked example at $200,000 net business income
Consider an agent in a province where combined corporate small-business rate approximates 12% and combined personal marginal rate at $200,000 approximates 45%. Both figures are approximations — actual rates depend on the province and the agent's full income picture[1].
As sole proprietor. The full $200,000 is taxed personally that year. Assume the agent personally needs $120,000 to live on. The full $200,000 is taxed regardless, producing approximately $90,000 in combined federal and provincial income tax (plus CPP — see the CPP guide). Net of tax: approximately $110,000 — less than the $120,000 living requirement, before CPP.
As PREC, drawing $120,000 personally. The corporation earns $200,000. The agent draws $120,000 as salary or dividend; $80,000 is retained inside the corporation. The retained $80,000 is taxed at the corporate small-business rate (~12%, ~$9,600), leaving ~$70,400 inside the corporation. The $120,000 drawn is taxed personally — at lower brackets than the $200,000 sole-prop figure, since personal income is lower. The personal tax on the eventual extraction of the retained $70,400 is deferred until that extraction occurs.
The deferred amount is the difference between the corporate rate paid this year and the personal rate that would have applied this year on the retained portion. At ~12% corporate versus ~45% personal on $80,000, the deferral approximates $26,000 of tax pushed into a future year. When that money is later extracted, additional personal tax becomes payable and the integration principle closes most of the gap. The permanent benefit is small; the timing benefit can be substantial when the retained funds are reinvested at a positive return.
Whether deferral is valuable for any specific agent depends on whether the agent actually needs less than full earnings to live on, whether the retained funds will be reinvested productively, and the difference between this-year personal rate and future-year personal rate at extraction. These are situation-specific questions a qualified accountant addresses with the agent's full income picture.
Salary vs dividend — two extraction methods
Once income is inside the PREC, the agent extracts it personally through one of two mechanical paths — or a blend of the two. Each path has different tax treatment, different contribution-room consequences, and different cash-flow characteristics.
Salary
- Corporate side: Salary is a deductible business expense to the corporation, reducing the corporation's taxable income dollar-for-dollar.
- Personal side: Salary is T4 employment income, taxed at the agent's personal marginal rate.
- RRSP room: Salary creates RRSP contribution room (18% of earned income, subject to the annual maximum).
- CPP: CPP applies on T4 earnings up to the yearly maximums. The corporation withholds and remits CPP on the salary portion exactly as any employer would[6].
Dividend
- Corporate side: Dividends are paid out of after-corporate-tax retained earnings. They are not deductible to the corporation.
- Personal side: Dividends are taxed at the personal level using the dividend gross-up and dividend tax credit mechanics, which are designed to integrate with the corporate tax already paid[3]. Eligible dividends and non-eligible (small-business-rate) dividends are taxed at different rates.
- RRSP room: Dividend income does not create RRSP contribution room.
- CPP: CPP does not apply to dividend distributions. The agent does not contribute on the dividend portion and does not accrue corresponding CPP benefit on it.
Most working PRECs use a blend of salary and dividend, calibrated to the agent's personal cash needs, target RRSP room, intended retirement structure, and the province's personal-vs-corporate rate differential. Neither salary nor dividend is universally better — the appropriate mix is a question for a qualified accountant who has the agent's complete personal financial picture.
What doesn't change
Several elements of an agent's tax and regulatory situation are unchanged by the move from sole proprietor to PREC.
- Provincial registration. The agent remains personally registered with the provincial real estate regulator. The PREC structure does not transfer the licence to the corporation in a meaningful sense — the individual agent continues to hold the registration and is personally responsible for regulatory compliance.
- HST/GST obligations. The entity that receives commission income is the entity that registers for HST/GST and collects the tax[7]. Under a PREC, the corporation is typically the registrant. The registration threshold ($30,000 of taxable supplies in any four-quarter period) and the obligation to charge, collect, and remit HST/GST on commissions still apply[7]. The HST/GST mechanics are covered in the tax planning guide.
- Earned-income character. Commission income flowing through a PREC is still active business income earned by the agent's personal services. It is not passive investment income.
- Underlying brokerage relationship. The agent's relationship with the brokerage continues — the PREC is the contracting party for commission flow, but the agent is the licensed individual conducting the trade.
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Setup and ongoing costs
Running a PREC involves both one-time and recurring costs that a sole proprietor does not incur. The cost categories below are described as cost categories — not as a threshold or a rule of thumb for when incorporation is or is not worthwhile. That question is situation-specific and is addressed by a qualified accountant with full visibility into the agent's income, draws, province, and long-term plans.
One-time setup
- Provincial incorporation. Filing fees and the cost of preparing articles of incorporation that comply with the province's PREC legislation. Most agents engage a lawyer for this; some provinces require specific shareholder and naming structures that benefit from legal review.
- Initial tax setup. Registering the corporation for a CRA business number, opening a corporate HST/GST account, opening a corporate payroll account if paying salary, and (where applicable) registering for provincial corporate accounts.
- Banking and brokerage transition. Opening a corporate bank account and updating the brokerage agreement so commission flows to the corporation rather than the individual.
Ongoing
- Annual corporate tax return (T2). Preparation of the federal T2 corporate return and any required provincial corporate filings, typically prepared by an accountant.
- Bookkeeping. Corporate-grade bookkeeping separated from personal finances. The corporation maintains its own books, its own bank account, and a clear record of inflows, outflows, and shareholder draws.
- Payroll administration. If the corporation pays salary to the agent, monthly source-deduction remittances (CPP, income tax) are required[6].
- Annual corporate filings. Provincial corporate annual returns and, depending on province, ongoing registration renewals with the real estate regulator that cover the PREC structure.
These costs offset the deferral benefit described in Section 3. The size of the offset depends on the agent's actual accounting and legal fees and on how much is retained inside the corporation each year. Whether the offset still leaves a net benefit, and at what income level, is a question for a qualified accountant.
Tracking PREC income through the year
Whether income flows through a sole proprietorship or a PREC, tracking gross commission income (GCI) as deals close — and applying the appropriate tax treatment to each dollar — is what produces a real-time picture of the year's tax position. For sole proprietors, that picture is personal tax on net business income. For PREC operators, it is a layered picture: corporate tax on retained earnings plus personal tax on the draw portion.
The free Canadian Realtor Tax Estimator produces a sole-proprietor-mode estimate of federal and provincial income tax, CPP, and HST from a single GCI input. A PREC mode that breaks the projection into corporate and personal layers is on the roadmap — for now, agents operating under a PREC use the estimator for the underlying gross figures and apply the corporate-vs-personal split with their accountant.
Inside Agent Runway, the dashboard's tax readiness card tracks the sole-proprietor estimate as deals close. The Flight Crew — Agent Runway's in-app AI — answers questions about how income, expenses, and tax estimates are tracked inside the product. Questions about which structure is appropriate for any individual agent, or how a PREC's salary and dividend mix is calibrated, sit outside the Flight Crew's scope and are handled by a qualified accountant or tax lawyer. The full Agent Runway feature set is described on the features page.