“What is critical is how much money at the end of the year the corporation retains,” says Gurinder Sandhu, the executive vice president and regional director of RE/MAX Ontario-Atlantic. “That’s where the tax deferral comes in in the largest deferral. What we’re doing [at RE/MAX Ontario-Atlantic] is launching this program for realtors who earn about $500,000-plus.”
Sandhu says agents who earn less than that amount won’t benefit from the tax benefits and the capital gains exemption as much as high-rolling Realtors will.
“When we surveyed [our top-performing agents], the item that came to the top of our list was the tax challenges,” he says. “It continues to be a challenge that they continue to want to see a resolution for.”
Sandhu says the brokerage first tried to enact change to the regulator environment, which prohibits Realtors from acting as corporations. However, they were unsuccessful in that endeavor.
“If you look at any major profession – doctors, lawyers, dentists – they all have the ability to incorporate and set up their businesses as effectively as possible,” Sandhu says. “In many provinces so do Realtors, but that’s not the case in Ontario.”
The brokerage developed a model that would provide its agents with a vehicle that helps them set up their businesses in the most tax-effective way, Sandhu says. The Agent Brokerage Program allows individual agents and agent teams to incorporate as mini-brokerages or mini-franchises of the main brokerage to which they belong. These mini-franchises then subcontract most of their administrative duties back to the main brokerage for a fee.
Several agents have already applied for the program – “a couple of dozen,” Sandhu says – and RE/MAX Ontario-Atlantic says it expects many more in the coming weeks. It also expects other brokerages will begin developing similar programs for their own agents.
Still, Sandhu warns agents who want to incorporate: the program may seem straight forward and simple, but the devil’s in the details. “There are rules that agents need to abide by,” he says. “As a broker, there are rules and regulations that [agents] need to consider, there are complexities and that’s why we as our agents to contact our brokers [for more information].”
Although Realtors aren’t able to incorporate in some provinces, one agency group at least is using a novel way to use a company structure to help with tax planning for its agents. The structure, however, is best suited to high performers.