PREC Rules

A PREC allows a real estate agent to earn their commission income into the PREC, as opposed to as personal income that goes directly to them. This can have tax advantages and is therefore an attractive option for many agents. However, in order to take advantage of this setup, the PREC itself, the brokerage, and the agent all have to comply with certain requirements. For example:

The agent must be the single controlling individual owning all voting shares of the PREC and also be the sole director and officer of the PREC;

Only the agent, or the agent’s family members can hold non-voting shares of the PREC;

The agent/controlling individual of the PREC must be registered as a broker or salesperson with RECO; and

The agent must be employed by the brokerage to trade in real estate.

Agreements

Because each party -the PREC, the agent, and the brokerage employing the agent – has obligations under the Regulation, these obligations should be papered properly.

What’s needed:

An agreement setting out the relationship between the agent and the brokerage.

This agreement is needed to comply with the requirement that the agent be “employed” by the brokerage to trade in real estate. The Act defines “employ” to mean: “to employ, appoint, authorize or otherwise arrange to have another person act on one’s behalf, including as an independent contractor” (emphasis added). While an agent could technically be a regular employee of the brokerage and comply with the PREC requirements, this would likely mean that the CRA would consider the PREC a Personal Services Business, which would have tax implications. The agent will therefore want to be set up as an independent contractor of the brokerage.

An agreement between the PREC, the agent, and the brokerage employing the agent detailing their various obligations to one another.

The details needed for this agreement can be found in the Regulations. Here is another helpful resource from RECO.

The Independent Contractor Agent

The distinction between an independent contractor and an employee can be muddy. Outside of the PREC considerations, there are ramifications for both the employee/contractor and the employer if the characterization is wrong.

A helpful way to think about an independent contractor is as a separate business, providing services to another business. The separate business/independent contractor will have control over their activities and schedule, use their own tools and equipment, and have a risk of profit or loss depending on how efficiently and effectively they work.

The independent contractor should invoice for services and manage business expenses. They should also be less integrated into the business they are providing services for than employees of that business. Ideally, they should not be an essential part of the brokerage’s workforce.

These are all factors that the CRA will consider if auditing a business regarding the status of an independent contractor. It is also important that the intention of the parties – that the agent be an independent contractor – be clearly set out in the form of an agreement.

If you have questions or need help with getting everything in place with your PREC or your agents’ PREC, get in touch! We’d be happy to help.