Steps to Incorporate
- Your first step would be to speak to an Accountant or Lawyer to determine if incorporating is the right option for you. Once decided, you must establish if you should incorporate federally or provincially and determine the share structure.
- If you need to transfer an existing business to your new corporation, you must consult your Accountant regarding a tax free rollover election referred to as Section 85 rollover.
- Your Accountant will submit a request to the CRA for a business number which will be issued in respect of the corporation’s income tax, payroll tax, harmonized sales tax (HST), and Employer Health Tax (EHT).
- You must make an application to RECO for approval that your corporation and new brokerage is in compliance with REBBA 2002.
- Business income earned by you from January 1 to the date of the incorporation will be reported on your personal tax return, with subsequent business income reported by the corporation.
Why should a Real Estate Professional consider incorporating?
There are many good reasons of why you should consider incorporating:
- A corporation provides increased legal protection. A corporation is a separate legal entity and as such limits your personal liability and protect you from exposure to bankruptcy and lawsuits.
- As a real estate agent in the top income tax bracket in the province of Ontario, you are paying tax at a rate of 46.4%. By incorporating, you are looking at paying tax at a rate of only 16.5%. This is a huge tax saving that has now become available to realtors.
- A corporation offers income splitting and tax planning opportunities by giving shareholders options of getting paid via salary and or dividends.
- A corporation allows for succession planning by allowing to transition ownership of a corporation on a tax deferred basis.
Why should a Real Estate Professional NOT consider incorporating?
While incorporating allows you to enjoy some great benefits, it is not the right option for everyone as you can see below:
- If you typically use all the income earned and there is no residual income, there is no tax benefit of having a corporation. According to Re/Max’s Agent Brokerage Program, incorporation is of benefit to those who earn over $300,000 a year and who want to retain money in their business as a tax deferral strategy.
- Due to RECO restrictions and requirements, you will be incurring significant increase in your operational costs. You will be paying for corporation registration fee, bookkeeping, corporate tax filing as well as additional fees paid under the Franchise Agreement and the Brokerage Service agreements. In absence of significant income tax savings, this structure might not be suitable.
Before you decide anything, please give us a call to help you make an educated decision.