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Realtor Tax Planning – Holding Company and PREC

Should you go with a Holding Company and PREC arrangement?

Professional Real Estate Corporations (PRECs) can be an ideal part of a tax planning strategy for successful realtors. However, a limitation on investments prevents realtors from using their PREC to directly invest. I’ve found that realtors typically focus on real estate in their investment portfolio and this restriction poses a problem. When starting a PREC, it’s a good idea to seriously consider setting up a Holding Company at the same time. If structured properly, a realtor can still reinvest their small business profits without triggering personal taxation.

How should realtors take money out of their related companies?

For Holding Companies with passive investments, such as rental properties, the passive tax rates apply. These higher tax rates generate a Refundable Dividend Tax on Hand (RDTOH) balance, which is refunded when the dividends are paid out to the shareholder. A realtor’s tax planning strategy should focus on allocating personal income from the RDTOH account balance first, and secondly, from any Capital Dividend Account balance. The CDA accumulates the 50% non-taxable portion of capital gains and can be paid out tax free to the shareholder; however, an election must be filed correctly in order to avoid severe penalties. It is easy to incorrectly file an election so it is highly recommended that you use a designated accountant, such as a Public Business Accountant, PBA.

If a realtor still needs additional income beyond the RDTOH and CDA account, then they need to decide on whether to declare T4 management fees or T5 dividend income.

T4’s

  • Considered active income
  • Requires CPP contributions
  • Increases your RRSP contribution room
  • Are a deduction to the PREC or Hold Co.

T5’s

  • Considered passive income
  • Does not contribute to CPP
  • Does not increase RRSP contribution room
  • Are not deductions to the PREC or Hold Co. (Paid out of after tax profits)
  • Generate a Dividend Tax Credit (Represents the corporate tax already paid and reduces the personal tax)

A realtor’s tax planning strategy can also be impacted by their future activities and mortgage requirements. It’s important to coordinate the tax planning with a good mortgage broker. Doing so will save yourself a lot of hassle and could get you a better mortgage rate.

Contact us if you would like to arrange an appointment with a PREC/Hold Co. accounting expert.

Non-Resident Canadian Rental Property

If you do not live in Canada but have a rental property here, the tax reporting requirements can be a challenge. If the rental property is not setup correctly you could be subject to significant penalties. Having a Public Business Accountant involved prior to the start of your rental could save you a lot of money and worry.

Non-residents of Canada with rental property are subject to special tax remitting and filing requirements. Foreign residents are required to remit 25% of their gross rents (before expenses) as a tax withholding unless they have filed a NR5 – Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be Withheld for Tax Year. Failure to do so can result in penalties. Since most rental properties are not very profitable from rental revenues, filing the NR5 can be very beneficial from a cash flow standpoint.  This form must be paper filed.

After each year, non-residents with rental property that choose not to remit the standard 25% are also required to file a tax return within six months of the year end. Any tax owing is due April 30th. This is a Section 216 return, not a regular T1 tax return. Like the NR5, these Section 216 returns must be paper filed.

If you have a profit on your Canadian rental property and pay tax, you are likely required to report the rental activity in your place of residence as part of your worldwide income. However, you would most likely be eligible to claim the foreign tax credit if your place of residence.

CITY TV Campaign CCA Complete Accounting Solutions

Click Here Vancouver TV 3 2016 v1

Above is the link for the Consumer Choice Award City TV announcement campaign that features Complete Accounting Solutions.

Complete Accounting Solutions is a firm of Public Business Accountants with a tax planning focus on small to medium sized businesses.

2016 Consumer Choice Awards Celebration


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Accounting Firm Surrey

2016 Consumer Choice Award – Accountants Small Medium Business – South Mainland Vancouver                                                   Presented January 14th, 2016 at the Fairmont Waterfront, Vancouver

It was a great honor to receive this award for our Surrey accounting office. It’s a public testament not just about Complete Accounting Solutions as an accounting firm, but also the Public Business Accountant designation. Having a PBA firm stand out and win in an industry dominated by CPA firms is an outstanding endorsement. It really speaks to our professionalism, dedication to small and medium business owners and commitment to customer satisfaction. We hope this award will encourage today’s accounting students to consider the PBA designation.

We would like to thank the Consumer Choice Award team that put this wonderful event together.

I would also like to thank my dedicated team that made this award possible – Muneeb Ehsan, Barbara Munn, Crystal Araujo, and Balwinder Kaur.

CCA Award 2016

Click Here To Visit www.ccaward.com

Event Photos

Metro Vancouver Ad

Metro Vancouver Ad 2016

Metro Vancouver Ad 2016

TSN 1040 Radio Ad

In case you missed it, click here to listen to our TSN 1040 Radio Ad that was featured on Sports Updates this month.

 

“Complete Accounting Solutions is a Better Business Bureau A+ accredited firm of Public Business Accountants and winner of the 2016 Consumer Choice Award. Let a PBA help your business… visit completeaccounting.ca”