What Ontario requires of PREC articles.

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.
• Limited holders of non-equity shares. Each non-equity share must be owned, directly or indirectly, by the controlling shareholder or their spouse, child or parent, or held by one or more individuals as trustees for the controlling shareholder’s minor children. Preference share classes drafted for ordinary corporations often permit holders the regulation does not.
• No restriction on the sole director. There must be no written provision, by agreement or otherwise, and no arrangement, that restricts or transfers the sole director’s powers to manage or supervise the management of the corporation’s business and affairs. Provisions that make ordinary decisions contingent on someone else’s vote work against this condition.
• A business that fits the purpose. To keep the exemption from registration, the corporation must not carry on the business of trading in real estate other than providing the services of its controlling shareholder to the brokerage, and remuneration must flow through the brokerage. This condition is about what the corporation actually does; the regulation does not require a business restriction in the articles. Writing one in is good drafting practice, and articles that authorize a general, unrestricted business leave it unstated.

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 closely, and one of the most expensive readers is a CRA auditor checking the share structure for tax.

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 are caught by the tax on split income (TOSI) rules, and whether the corporation risks personal services business treatment all connect back to the facts and, in part, to how the share classes, restrictions, and control provisions are drafted. Dividends a family member receives from a PREC are generally taxed at the top marginal rate under TOSI unless an exclusion applies, for example a family member aged 18 or over in the year who was actively engaged in the business on a regular, continuous and substantial basis in the year or in any five prior taxation years, or a spouse, from the year the registrant turns 65, where the dividend would have been excluded had the registrant received it. Whether a corporation is a personal services business is a question of fact that the wording of the articles does not decide. On $240,000 of active business income, the gap between the combined federal and Ontario small business rate (12.2% for 2023 to 2025) and the general corporate rate (26.5%) was 14.3 percentage points, about $34,320 of corporate tax a year if the small business deduction is lost. Since July 1, 2026 the combined small business rate is 11.2%, so the gap is now 15.3 points. If the CRA successfully challenged the structure for 2023 to 2025, that could come to about $103,000 on a reassessment, before interest. Much of it comes back through lower personal tax when the profits are later paid out, but the reassessment is paid first.

How to check articles you already hold

The free PREC Articles Health Check reads the text of your articles against the PREC conditions in O. Reg. 536/20 and the tax considerations under the Income Tax Act, clause by clause, and gives you a Red, Yellow, or Green rating for each regime. It runs entirely in your browser, and the check does not upload your document. It rates how the articles are drafted, and it does not certify that your corporation is compliant today.