Every PREC articles criterion, one by one
Two sets of rules reach into the same document. O. Reg. 536/20 decides whether the corporation is a PREC and keeps its exemption from registration; the Income Tax Act decides how it is taxed. Each criterion below is one thing the free Health Check reads in the articles, with the authority it comes from. Some come from the regulation, some are drafting practice, and some are tax considerations.
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Criteria from O. Reg. 536/20 and TRESA
Wording that supports the PREC criteria (O. Reg. 536/20, s. 2) and the conditions of the exemption from registration (s. 3). A corporation that does not meet the s. 2 criteria is not a PREC, and one that does not meet the s. 3 conditions loses the exemption. Both turn on facts, such as who owns the shares and what the corporation actually does, as well as on the articles, and the regulation does not prescribe how the articles must word any of them.
- The articles show a corporation incorporated under a statute other than the Ontario Business Corporations Act
O. Reg. 536/20, s. 2 ¶1
- The articles contemplate more than one holder of the voting shares
TRESA s. 1(1) ("equity share"); O. Reg. 536/20, s. 2 ¶2
- No agreement may restrict the sole director's powers
O. Reg. 536/20, s. 2 ¶6 (no restricting agreement)
- Sole director must be the controlling shareholder
O. Reg. 536/20, s. 2 ¶3 (sole director)
- President, as sole officer, must be the controlling shareholder
O. Reg. 536/20, s. 2 ¶4 (president as sole officer)
- The articles contemplate share ownership the regulation does not permit
O. Reg. 536/20, s. 1 ("family member"), s. 2 ¶5
- The articles let remuneration be received before the three-party agreement is in place
O. Reg. 536/20, s. 3 ¶¶8-11 (three-party agreement)
- The articles expressly permit the corporation to hold client money or property
O. Reg. 536/20, s. 3 ¶7 (client money)
- The articles expressly permit the corporation to hold itself out as trading in real estate
O. Reg. 536/20, s. 3 ¶3 (public representation)
- The articles expressly permit remuneration from someone other than the employing brokerage
O. Reg. 536/20, s. 3 ¶¶5 and 6 (remuneration)
- The transfer restriction turns on director consent, not on preserving PREC status
O. Reg. 536/20, s. 2 ¶¶2 and 5
- The restriction on business authorises trading in real estate or acting as a brokerage
O. Reg. 536/20, s. 3 ¶¶2 and 4 (business and brokerage)
- A non-voting class gains a vote on a stated trigger
TRESA s. 1(1) ("equity share"); O. Reg. 536/20, s. 2 ¶2
- Non-voting shares carry a right to convert into voting shares
TRESA s. 1(1) ("equity share")
- The board is fixed at more than one director
O. Reg. 536/20, s. 2 ¶3 (sole director)
- Right to redeem a share that has ceased to comply
O. Reg. 536/20, s. 2 ¶5
- Corporate name holds the corporation out as a brokerage
O. Reg. 536/20, s. 3 ¶3 (public representation)
Drafting practice
Recommended wording that O. Reg. 536/20 does not require. Leaving it out does not by itself stop a corporation from being a PREC.
- Private-company restrictions carried
OBCA (transfer restriction); Ontario securities law (NI 45-106 private issuer exemption)
- Compliance-interpretation and severability clause
Drafting practice
- Corporate name does not follow the "Personal Real Estate Corporation" convention
Drafting practice (convention)
- Corporate name does not carry the controlling shareholder's name
Drafting practice (identification)
Tax considerations under the Income Tax Act
The Income Tax Act sets no requirements for the articles. These are tax consequences that can follow from how the same document is drafted, alongside the facts, including CCPC status and the small business deduction.
- The restriction on business authorises real estate investment inside the operating corporation
ITA s. 125(7) ("specified investment business"); s. 110.6 (QSBC)
- A non-voting dividend-sprinkling class that cannot meet the TOSI excluded-shares test
ITA s. 120.4 (tax on split income)
- The articles expressly permit a transfer that would end CCPC status
ITA s. 125(7) ("Canadian-controlled private corporation")
- Private-corporation restrictions
ITA s. 89(1) ("private corporation"); OBCA; Ontario securities law (NI 45-106)
- The price adjustment clause does not reach the amount actually payable
ITA s. 85; CRA Folio S4-F3-C1
- The business is framed as the corporation performing the regulated activity, not as providing the shareholder's services
ITA s. 125(7) ("personal services business")
- The freeze shares do not meet the "specified class" conditions
ITA s. 256(1.1) ("specified class"); s. 256 (association)
- Limitation on distributions
Drafting practice (freeze integrity)
- Redemption and retraction machinery
Drafting practice (freeze integrity)