Re/Max brings agent incorporation to Ontario
Image by © Royalty-Free/Corbis
By Tony Palermo
Re/Max Integra has brought agent incorporation to Ontario.
Called the Agent Brokerage Program, the initiative brings Ontario in line with other provinces like British Columbia where real estate agents can incorporate and take advantage of the benefits, including significant tax deferral, which operating their business as a corporation offers.
Re/Max Ontario – Atlantic Canada executive vice-president and regional director Gurinder Sandhu says the program has been years in the making and was something top-performing real estate agents in Ontario have been demanding for quite some time.
“If you look at any major profession – accountants, lawyers, doctors, dentists, whatever – they’re all able to incorporate and set up a corporate structure to operate their business in the most tax-effective way possible,” says Sandhu. “Most professions have that ability, and in many Canadian provinces, so do Realtors. But it wasn’t so in Ontario. We’ve been lobbying for at least a decade to bring agent incorporation to Ontario.”
Sandhu says despite the intense lobbying, the Real Estate Council of Ontario (RECO) wouldn’t change its position on allowing agent incorporations. So, Re/Max began looking for another way they could introduce it. They found a way about a year ago and have been refining the model and putting it through an extensive due diligence process with tax and regulatory specialists.
Re/Max’s Agent Brokerage Program is geared towards both individual agents and teams. It’s of benefit to those who, speaking strictly in dollar amounts, earn over $300,000 a year and who want to retain money in their business as a tax deferral strategy.
The program works by allowing individual agents or teams to incorporate themselves as mini-brokerages\franchises of the main brokerage they belong to, and then subcontract a good part of the administrative duties back to the main brokerage for a fee.
Since they are still classified as brokerages, the mini-brokerages still need someone with a broker-of-record licence.
“This program really is the best of both worlds for agents who want the benefits of operating as a corporation but who want to offset many of the administrative duties that come with operating a brokerage,” says Sandhu. “Still, the agent is responsible to make sure everything is done properly before they sign off on it. At the end of the day, it’s their name and responsibility.”
Sandhu also cautions that while on the surface the program appears to be simple, behind the scenes are extensive rules and regulations that need to be followed. As he says, the incorporated agents and teams are being called mini-brokerages but they’re effectively full-fledged brokerages.
He also says the fees being paid to Re/Max don’t change and that the fees charged for the administrative work are negotiated between the main franchise and mini-franchise agent.
“This is meant as a value-add for our Realtors and brokers, not to generate more money for Re/Max Integra,” says Sandhu.
RECO deputy registrar Bruce Matthews says that under the Real Estate and Business Brokers Act, 2002 (REBBA), individual salespeople are not allowed to operate as a corporation. In addressing the years of lobbying, Matthews says it’s important to remember that while RECO’s mandate is to promote consumer protection through a fair, safe and informed real estate marketplace, RECO is delegated by the provincial government to administer the REBBA, not make the rules.
“Our responsibility is to administer what the government lays out,” says Matthews. “If the industry wants the rules to change, it’s the government they should be lobbying.”
Matthews says Re/Max’s Agent Brokerage Program, as he understands it, doesn’t appear to violate anything in the current REBBA. But he warns the mini-brokerage will be treated as a regular stand-alone brokerage and subject to all of the requirements such as registration, having a broker of record licence and proper insurance and it will ultimately be held liable for their conduct.
“And from a consumer protection stand-point, that’s my ultimate concern,” says Matthews. “Our current structure makes the individual salesperson directly accountable for their own conduct. I don’t want anyone to be able to distance themselves from liability by operating as a corporate business.”