A Personal Real Estate Corporation (PREC) is a specific type of corporation established by real estate professionals in Canada, primarily for tax and liability purposes. It allows real estate agents and brokers to conduct their real estate business through a corporate entity, which can offer certain tax advantages and limited liability protection. PRECs are subject to regulations set forth by Canadian tax law and the Canada Revenue Agency (CRA). Here's a more detailed definition of a PREC:

1. Taxation Benefits:

Income Splitting: One of the primary tax benefits of a PREC is the ability to split income among family members who are shareholders, potentially resulting in a lower overall tax burden.Lower Corporate Tax Rates: In some provinces, corporations, including PRECs, may benefit from lower corporate tax rates compared to personal tax rates on high incomes.

2. Limited Liability: Similar to other corporations, a PREC provides a level of limited liability protection to its shareholders. This means that the personal assets of the shareholders are generally protected from business-related liabilities and debts incurred by the PREC.

3. Eligibility Criteria: To qualify as a PREC, the corporation must be incorporated under provincial or territorial laws in Canada.The sole business of the corporation must be providing real estate services. The majority of its income should come from these services.The shareholders of the PREC must be individuals who are licensed real estate agents or brokers in Canada. The individuals providing real estate services must own at least 50% of the voting shares of the PREC.

4. Compliance with CRA Requirements: PRECs must comply with the specific rules and regulations outlined by the Canada Revenue Agency.The PREC must maintain proper records of income and expenses, file annual corporate tax returns, and adhere to tax-related obligations.Shareholders must report their income from the PREC on their personal income tax returns.

5. Share Structure:Typically, the shares of a PREC are held by the licensed real estate professional and, if applicable, their family members (e.g., spouse, children).

6. Reporting and Documentation: PRECs must maintain proper documentation and records of all financial transactions and real estate activities.The PREC must adhere to the reporting and compliance requirements set by the CRA, including filing annual corporate tax returns.

7. Tax Planning: Real estate professionals who incorporate as a PREC can work with tax professionals to create tax-efficient strategies, such as income splitting and deductions, to optimize their tax situation.

It's important to note that the rules and regulations related to PRECs can vary by province or territory in Canada, so it's essential to consult with a tax professional or legal advisor who specializes in real estate taxation and corporate structures to ensure compliance with the specific requirements in your jurisdiction. Additionally, tax laws and regulations are subject to change, so staying updated on current tax rules is crucial for PREC owners.