That change will be coming soon to other Ontario professionals as well, including architects, lawyers and real estate agents. Soon the legislation will allow realtors to incorporate themselves with Bill 104, the Tax Fairness for Realtors Act, after years of failed attempts. With this act comes several financial benefits for real estate agents, including better tax rates, tax deferral opportunities and income splitting opportunities.
Within the province of Ontario, the highest marginal rate is 53.53% on an income that’s over $220,000. As a Personal Real Estate Corporation, agents within these means will have access to the Ontario small business tax rate, which stands at 13.5% on the first $500,000 of income that can be taxed. As long as they’re Canadian Controlled Private Corporations, any income that exceeds $500,000 will be taxed at 26.5%, meaning that going down the incorporation route will leave real estate agents with an opportunity to reduce their tax responsibility by up to 38.53%.
Within the province of Ontario, the highest marginal rate is 53.53% on an income that’s over $220,000. As a Personal Real Estate Corporation, agents within these means will have access to the Ontario small business tax rate, which stands at 13.5% on the first $500,000 of income that can be taxed. As long as they’re Canadian Controlled Private Corporations, any income that exceeds $500,000 will be taxed at 26.5%, meaning that going down the incorporation route will leave real estate agents with an opportunity to reduce their tax responsibility by up to 38.53%.
The concept of income splitting is in regards to a process that allows corporations to separate that particular organization’s income among family members. This is done by either paying them a fair salary or through issuing dividends. Issuing dividends is a proposition within Bill 104, which allows for the issuing of non-equity shares to a realtor’s family members.
Now, even with these new adjustments in place, the incorporation process is still a bumpy road. Filing requirements and record keeping are far more taxing for corporations, as there are set up costs and annual maintenance costs that need to be considered. The indirect taxes need to be weighed as well, which include employer health tax, WSIB, GST/HST on commission and taxes surrounding payroll. While a complex situation, incorporation for real estate agents is an important evolution within the industry, with Bill 104 allowing realtors to maximize their income using new financial management means.
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