Working as a realtor, you might have considered setting up a personal real estate corporation (PREC) during some point. A PREC can offer several tax and other benefits, but it’s important to understand the insurance implications of this type of entity. Seems complicated? Don’t worry, we have got you covered!
Utilizing our decades’ worth of experience, we can help you determine if forming a PREC is the right choice for you. Let us help you organize your finances, create wealth, and transform wealth into a legacy. Make sure to book a FREE consultation with our experts by clicking here.
In this blog, we will explore different insurance strategies for PRECs.
What is a PREC?
A personal real estate corporation (PREC) is a Canadian legal entity that allows an individual to own and control real estate in a more flexible and tax-effective way than through the traditional methods of direct ownership or holding title as joint tenants with right of survivorship.
A personal real estate corporation can be used to own residential or commercial property, or both. It can also be used for investment purposes, such as holding a portfolio of rental properties.
Benefits of owning a PREC
The main advantage of using a PREC is the ability to shelter income from taxation. This is because a PREC is treated as a separate legal entity for tax purposes. As such, it can earn income and pay taxes at corporate rates, which are generally lower than personal tax rates.
Another advantage of using a PREC is the flexibility it provides in terms of how ownership interests are structured. For example, different classes of shares can be created so that each owner has voting rights proportionate to their ownership stake. This can be useful in cases where there are multiple owners with different goals for the property.
Another advantage of using a PREC is the increased privacy it affords. The names of the shareholders and directors are not publicly available, unlike in the case of a traditional corporation. This can be useful for high-net-worth individuals who wish to keep their ownership interests private.
Finally, a PREC can be used to create an estate plan that minimizes taxes on the transfer of ownership interests at death.
A personal real estate corporation (PREC) is a type of business entity that offers certain tax and liability benefits. While a PREC can be a great way to protect your personal assets, it’s important to understand the insurance implications of this type of entity.
Protection of Personal Assets
One of the key benefits of setting up a PREC is the ability to shield your personal assets from liability. However, it’s important to note that not all insurance policies will cover liabilities incurred by a PREC. For example, most homeowner’s insurance policies exclude coverage for businesses, so if you operate your rental properties through a PREC, your personal homeowner’s policy will not provide any protection.
Separate Insurance Policies
Another key consideration is that, because a PREC is a separate legal entity, it will need its own insurance policies. This means that you will need to purchase commercial general liability (CGL) insurance, as well as property insurance for your rental properties. CGL insurance protects your business from claims arising from bodily injury or property damage caused by your business operations. Property insurance protects your buildings and contents from damages caused by perils such as fire, wind, and theft.
Still not sure?
As a realtor, you might have considered setting up a personal real estate corporation (PREC) at some point. While structuring your corporation, you have to make a number of complicated decisions about how to set up your company. But don’t worry, CPA4IT can help you navigate through these difficult decisions and help you choose the right business structure. Make sure to set up a FREE consultation with our experts by clicking here.