The 41-point spread, and its catch
A PREC pays about 12.2% on its first $500,000 of active commission income in Ontario, while the same dollar earned personally can face up to 53.53%. That spread of roughly 41 points is the engine behind every piece of realtor planning, and it has one catch: it runs only on dollars that stay in the corporation. Pay everything out as dividends and integration claws back nearly all of it, leaving you within a couple of points of having earned the money personally, minus the accounting fees.
So the plan starts with a household number, not a tax table. What do you actually need to live on, and what can the PREC retain? Only after that number is honest does anything else on this page matter.
Hot years, cold years: pay yourself on purpose
Realtor income swings with the market, and the PREC turns that from a tax problem into a planning tool:
- Salary is deductible to the corporation, creates RRSP room and CPP contributions, and suits a steady base amount you draw every month.
- Dividends are flexible in timing and amount, which lets a slow year be topped up from a strong year's retained earnings.
- The smoothing play: retain aggressively when the spring market runs hot, then draw dividends through the cold stretch, keeping your personal income out of the top brackets in both years.
Instalments ride along with these choices. A big personal draw this year sets next year's quarterly instalments, so we plan the draw and the instalment calendar together instead of letting March surprise you.
TOSI: the family-dividend test
Ontario lets family members hold non-equity shares of a PREC, but holding shares is not the same as receiving dividends at a reasonable rate. TOSI taxes split income at the top personal rate unless an exclusion applies, and for a PREC the exits are narrow:
| Who receives the dividend | TOSI outcome |
|---|---|
| Spouse or adult child not involved in the business | Top rate; no realistic exclusion |
| Family member averaging 20+ hours a week in the business, this year or in any five earlier years | Excluded business: taxed at their normal rates |
| Spouse, once you have turned 65 | Excluded: pension-style splitting works |
| Anyone counting on the excluded-shares test | Unavailable: PREC income is from services and family shares are non-voting |
The honest version: if your spouse genuinely runs your admin, marketing and showings pipeline at 20 hours a week, documented, family dividends can work. Otherwise they mostly do not, and pretending is expensive when the CRA asks for timesheets that were never kept.
Retained earnings need their own plan
Money the PREC keeps has to live somewhere, and where it lives changes your rate. Once passive investment income inside the corporation passes $50,000 in a year, the federal small business limit shrinks by $5 for every extra dollar and is gone at $150,000. Ontario never adopted that grind, so the provincial small-business rate survives, but the blended rate on commission income still climbs. A realtor who retains well for a decade will eventually meet this rule.
The responses are ordinary but need sequencing: enough salary to fund RRSP room, corporate investing kept an eye on relative to the grind line, and realistic timing for when retained money comes out. This is the standing agenda of our Tax Planning and Advisory work, reviewed with every corporate filing rather than once at incorporation. Our brand line applies here more than anywhere: your accountant files your taxes, we help you decide, and the running decisions live in our decision library.
Two limits worth knowing before you rely on them
First, dividends skip CPP in both directions. An all-dividend pay mix saves the contributions today and quietly shrinks the pension later, so the choice is a retirement decision wearing a tax costume, and we model it as one.
Second, do not build the plan around a $1.25 million capital gains exemption exit. The LCGE needs a buyer for your shares, and a PREC's only product is you: your registration, your relationships, your pipeline. Unlike a brokerage or a team with staff and systems, there is rarely anything a purchaser can buy, so the realistic endgame is drawing retained earnings down in low-income years, not a sale. Planning for the probable exit beats planning for the flattering one.
