Two regimes govern one document
A Personal Real Estate Corporation lives under two sets of rules at once. Ontario decides whether the corporation qualifies as a PREC at all: the Trust in Real Estate Services Act, 2002 and Ontario Regulation 536/20 set the conditions a registrant’s corporation must satisfy so that the registrant can be paid through it. Separately, the Canada Revenue Agency decides how the corporation is taxed, and the Income Tax Act does not care what RECO thinks. Articles that satisfy one regime can still create expensive problems under the other, which is why the two are always assessed separately and never blended into one score.
The conditions that reach into the articles
Several of Ontario’s conditions are about facts in the world, such as who actually holds the shares and whether a brokerage agreement exists. But a number of them reach directly into how the articles of incorporation are drafted, and those are the ones a document can get wrong on day one:
- One controlling shareholder. All of the equity shares must be owned, legally and beneficially, directly or indirectly, by the registrant the corporation exists to serve. Share structures that permit equity to sit anywhere else work against the conditions.
- One director, who is that shareholder. The corporation must have a single director, and it must be the controlling shareholder. Articles that allow a board of several directors leave the door open to a non-qualifying structure.
- One officer, the president. The controlling shareholder must be the president and the only officer. Articles or by-law provisions contemplating additional officers cut against this.
- Family-only non-equity shares. Non-equity shares may be held only by the controlling shareholder or members of their family. Preference share classes drafted for ordinary corporations often permit holders the regulation does not.
- No fetter on the controlling shareholder. There must be no agreement or arrangement that restricts the controlling shareholder’s power to manage the corporation. Provisions that make ordinary decisions contingent on someone else’s vote work against this condition.
- A business that fits the purpose. The corporation must not carry on the business of trading in real estate other than providing the services of its controlling shareholder, and remuneration must flow through the brokerage. Articles that authorize a general, unrestricted business are the single most common gap we see.
Exactly how each condition should be expressed in the wording of the articles is a drafting question for your corporate lawyer. What matters for a realtor holding articles today is simpler: whether the document you have works for those conditions or against them.
Why ordinary incorporation articles usually miss
Most incorporations in Ontario are produced from general-purpose templates: unlimited business, standard share classes, a flexible board. Those defaults are sensible for an ordinary company and wrong for a PREC. The corporation still gets incorporated, the certificate still arrives, and nothing complains, because the registry does not check PREC conditions when it issues a certificate. The problem stays invisible until someone reads the articles against the regulation, and the most expensive reader is a CRA auditor.
The tax side of the same document
The CRA’s questions overlap the same clauses from a different angle. Whether the corporation keeps Canadian-controlled private corporation status, whether dividends paid to family members through non-equity shares survive the tax on split income rules, and whether the corporation risks personal services business treatment all connect back to how the share classes, restrictions, and control provisions are drafted. On roughly $240,000 of active business income, the gap between Ontario’s small business rate and the general corporate rate is about fourteen percentage points, which is why a drafting problem that sits quietly for three years can turn into a six-figure reassessment.
How to check articles you already hold
The free PREC Articles Health Check reads the text of your articles against the RECO registration conditions and the CRA’s tax requirements, clause by clause, and gives you a Red, Yellow, or Green rating for each regime. It runs entirely in your browser, so your document never leaves your machine. It rates how the articles are drafted; it is not legal or tax advice, and it does not certify that your corporation is compliant today. Have a qualified professional review before you rely on or file anything.