Ontario real estate agents are cheering a new government bill that would allow them to incorporate – a move that could mean huge tax benefits and align them with other professions as well as peers in other provinces.
The proposal is part of Bill 145, the Trust in Real Estate Services Act, and comes after more than a decade of lobbying from the industry to enable its salespeople and brokers to incorporate and have their commissions paid through the corporation.
The government says incorporation would “create a stronger business environment” and is proposing the change as part of amendments aimed at strengthening consumer choice, protection and professionalism in the real estate industry.
Almost all real estate agents are independent contractors who are paid by commission. By incorporating, salespeople and brokers could keep their commission payments in a corporation, where the money is taxed at a much lower rate before being withdrawn as income for personal use, either through a salary or dividends. Today in Ontario, only brokerage firms can incorporate, or brokers paid a management fee – separate from sales commissions – for running a brokerage.
Other professionals, including accountants, lawyers and insurance brokers, already can incorporate in Ontario and across the country. The change would put Ontario real estate salespeople and brokers on equal footing with their counterparts in B.C., Quebec, Alberta, Saskatchewan, Manitoba and Nova Scotia.
“It’s time to modernize,” said Joseph Richer, registrar of the Real Estate Council of Ontario, which regulates real estate professionals in Ontario on behalf of the provincial government.
Tim Hudak, chief executive of the Ontario Real Estate Association, an independent professional organization that represents salespeople and brokers, said the change would allow professionals to invest more in staff and new technology, and make a greater contribution to the local economy.
“It’s a modern business tool that’s available to a significant number of other professions,” said Mr. Hudak, a former leader of the Progressive Conservative Party of Ontario.
Having a corporation would also help realtors set aside more money for industry downturns. “It appropriately recognizes that the real estate cycle can have some significant ups and downs," he said. "... This helps them plan over that cycle.”
Andrew Zakharia, a small-business accountant and founder of AZ Accounting Firm in Toronto, said incorporating would provide “substantial savings” for some real estate agents, high earners in particular.
Incorporated professionals could defer as much as 41 per cent in taxes by leaving money in their corporation, or about $41,0000 for every $100,000 in profit. The estimate is based on the highest personal-tax rate in Ontario of 53.53 per cent and the lowest business tax rate of 12.2 per cent on the first $500,000 of profit, taking into consideration a cut in the small-business tax that begins in 2020.
Mr. Zakharia says incorporation is not as appealing for people who spend all or most of their income, in part because of the cost of incorporation, which is about $1,500 to $2,000 to set up and can range from $2,000 to $5,000 or more a year for tax-preparation.
“It will only help people who make more money than they need to live on and are leaving money inside the corporation,” he said.
Business owners that incorporate also need to keep in mind new federal passive-income rules that gradually eliminate access to the small-business deduction for Canadian-controlled private corporations that earn money from assets not directly used in the business, such as stocks and bonds. The change took effect in 2019. Businesses lose access to the deduction if they have more than $50,000 in passive investment income in a year. They lose access entirely after $150,000 a year. Premier Doug Ford has called on the federal government to reverse the changes.
Catherine Himelfarb Borden, a Toronto-based real estate sales professional and managing partner of the Forest Hill Real Estate Inc. Brokerage Yorkville branch, says the proposed change would level the playing field.
While Forest Hill is incorporated, her commission is subject to personal-tax rates. Incorporating would allow Ms. Himelfarb Borden to keep money in her corporation and, because of the lower tax rate, invest more in the operation.
“Funds can be allocated for business growth, promotion and planning for the long-term,” she said. That includes hiring other professionals such as marketers, photographers, decorators and home stagers. “It will be great to be able to pay for them out of a corporation, instead of personally,” she said.
Incorporating would also help her compete for talent to grow her brokerage. “Prospective sales reps often ask us if they can incorporate,” she said. “Being able to answer this question in the positive will go a long way to attracting top realtors.”
The government has said it would work with the industry to develop the regulations, “including to establish rules for the structure of these corporations,” Matteo Guinci, a spokesman for the Ministry of Government and Consumer Services, said in an e-mail. He also said the measures would ensure real estate professionals who incorporate “would continue to remain accountable and subject to all existing professional obligations including education, insurance, professional liability, code of ethics and other requirements.”
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