Your PREC's first full tax year: HST, the T2 corporate return and paying yourself

Summary

A personal real estate corporation (PREC) is an Ontario corporation that you, as a licensed salesperson or broker, set up so that your brokerage pays your commission to the company rather than to you personally. Your licence stays personal and the corporation can never hold it. Ontario does exempt the corporation itself from registering with the Real Estate Council of Ontario, so long as it meets a set of conditions (e.g. you own every share that carries a vote, and you are its only director).¹

A PREC has two first years, and the difference drives most of what follows. Year one runs from the day you incorporate to your corporation’s first year-end. That date closes its first tax year, and unlike your personal tax year, you get to choose it. Nothing has to be prepaid during year one, and year two is where everything year one let you skip arrives at once.

Four things to get right, in roughly the order they arrive:

1. Register the corporation for sales tax on day one. Ontario’s federal and provincial sales taxes are combined into one 13% tax called HST, which the corporation adds to what it invoices the brokerage, and the $30,000 small-supplier exemption, measured over any four consecutive calendar quarters, almost never saves a new PREC from registering.
2. Put four dates in your calendar the week you incorporate: the Ontario Initial Return, a one-time corporate registry filing, 60 days after you incorporate, the corporation’s income tax and annual HST payments normally three months after year-end, and its T2 (the corporate income tax return) and Ontario Annual Return, a yearly registry filing, six months after year-end.²
3. Budget for instalments, meaning prepayments of tax made during the year, on both HST and corporate tax. Both start in year two, before the tax bill for year one is due.
4. Pay yourself as salary, as dividends, or as repayment of money you personally put in to start the corporation up, which is your own money coming back and isn’t taxed again. What’s left in the corporation’s bank account isn’t yours: it’s the HST and corporate tax owed to the Canada Revenue Agency (CRA).

We’d usually recommend a December 31 year-end, with a mix of salary and dividends settled once the year’s profit is known. Stop before any of this if your brokerage treats you the way it would treat an employee, because the corporation can then cost you more than it saves.

HST in the first two years

A new PREC rarely gets the benefit of the $30,000 small-supplier exemption. For sales tax purposes you and a company you control count as a single business, so the commissions you earned personally in the four quarters before incorporating count toward the corporation’s own $30,000.³

Registering on day one is right regardless. Your brokerage is registered too, so the 13% costs it nothing: it claims the amount straight back as an input tax credit, which is the refund a registered business gets on sales tax it has paid.⁴ The same credit hands the corporation back the HST on its own costs (e.g. desk fees, board dues, advertising and your bookkeeping).

Annual HST reporting is assigned at taxable supplies of $1.5 million or less, unless you choose a shorter period. For an annual filer, quarterly instalments start once its net HST for a year, meaning what it collected less the credits it claimed, reaches $3,000 and is expected to do so again the year after.⁵

Corporate tax, and when it’s due

A PREC is a Canadian-controlled private corporation (CCPC), meaning a private company controlled by Canadian residents, and the commission it earns counts as income from running a business rather than from investments. Its first $500,000 of profit each year therefore qualifies for the small business deduction, a lower corporate tax rate whose federal component is 9% for 2026.⁶ Ontario’s own lower rate is 3.2% for days in the tax year before July 1, 2026 and 2.2% for days from that date on, split by day count if your tax year spans that date.⁷ Across a full 2026 calendar year those two rates blend to about 2.7%, which on top of the 9% federal rate is 11.7% of the first $500,000 of profit. Profit above that loses the small business rates and pays 26.5%, being 15% federal plus 11.5% Ontario.

Your first tax year can end on any date within 53 weeks of incorporating, and we’d recommend December 31. A calendar year-end keeps four clocks together, i.e. the corporate year, the sales tax year, your personal tax year and the end-of-February deadline for the T4 and T5 slips described below.⁸ The cost of that choice is a March 31 payment date, in the leanest weeks of the commission year.

The usual three-month payment deadline requires CCPC status throughout the year, a small business deduction this year or last, and prior-year taxable income within the applicable business limit, counting associated companies. Otherwise payment is due at two months.⁹ The T2 itself isn’t due until six months after year-end, meaning June 30 where the year-end is December 31. Pay in June alongside the return instead and the CRA charges interest, compounded daily, from April 1. No instalments are due in the corporation’s first tax year, or in any year where its income tax is $3,000 or less, a corporate test separate from the $3,000 HST one above.¹⁰ After that the default is monthly instalments, each normally one twelfth of the previous year’s tax.

Paying yourself

The corporation pays you by one of three routes, and Ontario caps the first of them. The remuneration it pays you for trading in real estate can’t exceed what the brokerage paid it on your deals.¹ Repaying money you lent the corporation isn’t remuneration, so it sits outside that cap.

Salary is deductible to the corporation and taxed to you. Paying it means opening a payroll account with the CRA, holding income tax back from each payment and sending that in monthly, and issuing a T4 by the last day of February. Canada Pension Plan contributions are then charged twice on the same dollars, 5.95% from you and 5.95% from the corporation, on the part of your salary between $3,500 and $74,600 in 2026. The maximum is $4,230.45 from each side, and you own the corporation, so you pay both, which is 11.9% of that band in total. A second contribution runs at 4% from each side on the slice between $74,600 and $85,000, capped at $416 each.¹¹

What salary buys is RRSP room, meaning what you may put into a registered retirement savings plan, and a T4, the slip that a mortgage lender reads as proof of employment income. Salary paid in 2026 creates room for 2027 at 18% of it, capped at $35,390.¹² What it doesn’t buy is Employment Insurance, because you own more than 40% of the voting shares. No premiums come off your pay and regular EI is closed to you. You can register with the Canada Employment Insurance Commission as a self-employed person and pay premiums for the special benefits, covering maternity, parental, sickness and compassionate care leave.¹³

Dividends skip most of that machinery, needing no payroll account, no tax held back and no CPP, just a T5 slip (the dividend equivalent of a T4) by the last day of February. On the flip side they build no RRSP room and no CPP credit, and lenders may assess dividend income differently from salary. Both routes are taxed again on your personal return, and Canada’s system is built so the two land close together, which is why the choice turns on the differences above. A standing monthly transfer to your own account is neither of them, so it counts as a loan, and subsection 15(2) of the Income Tax Act adds an unrepaid loan to your income unless you clear it within a year of the end of the tax year you took it in.¹⁴

In our view the sensible default is enough salary to build the RRSP room you want, with the rest as dividends declared once the profit is known. More salary usually wins if you’ll apply for a mortgage within two years. The choice matters much less if you spend everything you earn, since no profit is then left inside the corporation. Paying a spouse has rules of its own, and PREC rules stop them holding voting shares.

The personal services business risk

A single CRA determination about how you actually work with your brokerage can take away the small business rate and most of the corporation’s deductions, the two things that made incorporating worth doing. If you’d reasonably be regarded as an employee of the brokerage but for the corporation, the PREC is a personal services business. Its profit then faces 33% federal tax, including the additional 5% PSB tax, plus Ontario’s general rate. Both federal rate reductions are denied, and it deducts almost nothing beyond the salary it pays you.¹⁵¹⁶ There is no special test for PRECs. The CRA applies the same common-law test it uses for any contractor, turning on practical things (e.g. control over your hours and methods, who carries your advertising and vehicle costs, and whether you can lose money in a bad year). A corporation employing more than five full-time people all year is outside the definition entirely. We found nothing published by the CRA addressing PRECs specifically, so your own facts are worth paying somebody to look at properly.

How often this changes

• Every year-end, because Ontario’s lower rate moved on July 1, 2026 and the 11.7% figure above is the blend for a December 31, 2026 year-end only.
• When you hire an employee, leave your brokerage or leave Ontario, since a PREC exists only under Ontario’s real estate regulation.

Closing thoughts

Almost all of the above is a rhythm rather than a decision, and the decision itself was made the day you incorporated. What the corporation buys you is profit taxed at 11.7% rather than at your personal rate, and only on the profit you leave inside it. An agent whose corporation earns $180,000 and draws all of it out to live on has taken on a compliance calendar and none of the deferral. The household budget question is worth answering before any of the tax ones.

How we handle it

We set the year-end and the HST registration date at incorporation, rather than discovering them at the first year-end. We open the payroll account if there’s going to be salary, and put the instalments, the tax payment date and the two Ontario registry filings on one calendar. Your corporate and personal returns are prepared in the same file.