A change took place 15 years ago that allowed Ontario doctors to take control of their income, allowing them to incorporate their business. That change applies to other Ontario professionals as well, including architects, lawyers and real estate agents. 2017 was the year that legislation allowed realtors to incorporate themselves with Bill 104, the Tax Fairness for Realtors Act, after years of failed attempts. With this act come several financial benefits for real estate agents, including better tax rates, tax deferral opportunities and income splitting opportunities.
Better Tax Rates
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%.
Tax Deferral Opportunities
The opportunity seen in the lesser corporate tax rate of 13.5% is then compounded when the opportunity to delay the tax payment on a share of income altogether is taken into consideration. When incorporated, realtors will now have the once denied opportunity to leave a share of their revenue in the business. This means that they’ll be able to delay tax payments relating to that specific income until the money is withdrawn.
Income Splitting Opportunities
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.
Since 1979, S&W LLP Chartered Professional Accountants has been a reputable and reliable chartered accounting firm located in Etobicoke, Ontario. We tailor our wide range of services to your business’s specific needs. Small or medium-sized company clients are welcome to utilize our services, which include business advisory accounting, tax planning, estate tax planning, professional and personal accounting, rental properties and more. With efficient assistance and quick response times, call us today for a free 30-minute consultation.