For incorporated Ontario realtors
A corporation is a Personal Real Estate Corporation only while it meets the criteria in section 2 of Ontario Regulation 536/20, and your brokerage can pay it only while it also meets the conditions of its exemption from registration in section 3. Most of these turn on facts, such as who holds the shares and who is the director, and the articles can make a breach easier or harder. The free PREC Articles Health Check reads your articles against both regimes that govern a PREC, the PREC conditions in O. Reg. 536/20 (administered by RECO) and the Income Tax Act rules, administered by the Canada Revenue Agency, that decide how the corporation is taxed, and rates each Red, Yellow or Green. A hint to take to your lawyer and CPA, not legal or tax advice.
Many accountants and lawyers treat articles of incorporation as relatively innocuous documents. Let me offer a different perspective, based on my 16 years as a CRA auditor.
When a corporation benefits from preferential tax treatment, the CRA has an interest in ensuring that the corporation qualifies for those benefits. Non-compliance can result in reassessments and significant tax consequences.
As a CRA auditor, one of the first documents I would examine were the corporation's articles. I was looking for compliance red flags suggesting the corporation might not have properly set up its corporate accounting, AUDIT TIME! Compliant articles? I go to the next taxpayer.
Here are four examples:
1. Corporate Name: RED FLAG
Suppose your corporation is named XYZ Professional Real Estate Corporation rather than XYZ Personal Real Estate Corporation.
RECO desires, does not require, PERSONAL. RECO's own guidance only cautions against a name that suggests the corporation is a brokerage, and to me a name implying the corporation itself provides professional real estate services raises questions notwithstanding clear direction was not taken.
But as an auditor, I'm already wondering what else might have been overlooked.
2. Number of Directors: RED FLAG
Under Ontario's PREC regulation (O. Reg. 536/20, s. 2 ¶3), which RECO administers, a PREC must have only one director, the controlling registrant.
Articles permitting 1 to 12 directors. RED FLAG, 1 director no red flag.
Is that automatically a violation? No. The corporation may currently have only one director.
But where are the safeguards preventing additional directors from being appointed?
3. No Restrictions in Item 5: RED FLAG
Item 5 of your Ontario articles may simply state "None."
The regulation does not require a business restriction in the articles, but a PREC may not carry on the business of trading in real estate other than providing your services to your brokerage (O. Reg. 536/20, s. 3 ¶2). Writing that limit into item 5 is good drafting practice, and its absence is something I would look at.
4. Share Convertibility: RED FLAG
Suppose your articles permit non-voting shares to be converted into voting or equity shares.
PREC ownership and voting control are strictly regulated.
Why create that risk when properly drafted articles could help prevent it?
Here's the important distinction:
Red flags do not necessarily mean your PREC is non-compliant. They mean I want to look more closely.
The bottom line: Your articles of incorporation can be your first line of defense or your first invitation to further scrutiny.
Multiple red flags can send a message that says:
"Audit me. There's a good chance you'll find something."
Since 2020, an Ontario real estate salesperson or broker has been able to earn their trade income through a Personal Real Estate Corporation. It can open room for tax planning your accountant will walk you through, but the corporation only qualifies while it keeps meeting the conditions in the Trust in Real Estate Services Act, 2002 and Ontario Regulation 536/20.
Among those conditions: a single director who is the registrant, who is also the president and only officer; the registrant as the one controlling shareholder holding all the voting shares; non-voting shares held only by the registrant, their spouse, child or parent, or individuals as trustees for their minor children; no arrangement that restricts the director's powers; and a corporation that never holds itself out as trading in real estate and takes remuneration for trading only from the brokerage. Miss one and the corporation can quietly stop being a PREC, or stop being exempt, often discovered only when it matters most.
The gap most people never check is the paperwork itself: whether the articles of incorporation actually lock those protections in, or merely leave compliance resting on how the company happens to behave. Non-compliant articles can mean non-compliant tax returns, which means potential for CRA audit. That is exactly what the Health Check surfaces.
The free tool
Upload or paste your articles of incorporation. The PREC Articles Health Check does the rest (no questionnaire, no account) and gives you a plain-language read on where your articles stand.
PREC Articles Health Check
The tool reads your articles against a profile of the core conditions and protective guardrails that keep a PREC eligible under O. Reg. 536/20. It rates how well the articles are drafted to protect that status, flags every protection that is present or missing, and names the requirement behind every gap. Anything it cannot find counts against the rating.
Green
Every requirement the check looks for is satisfied, and nothing contradicts either regime.
Yellow
No main condition is missing or contradicted, but recommended protective wording is missing or unclear, or a lesser requirement is contradicted.
Red
A main condition is contradicted or its wording is missing, or the document could not be read.
Capital Toolkit is an automated service. It provides general information, not legal, tax or accounting advice, and it does not replace your own lawyer or accountant. Have a qualified professional review any document before you rely on it, sign it or file it.
The Health Check produces a drafting-quality hint from the article text you provide. It is a starting point for a qualified lawyer and CPA, not a finding that your corporation qualifies as a PREC.
The path
Paste the text or upload the file. No questionnaire, no account. The tool reads the articles directly.
A Red, Yellow, or Green rating, plus a clause-by-clause list of which protections your articles lock in and which are missing.
For any missing protection, the free report names the requirement and its authority. The paid Deep Dive adds what to raise with your lawyer for each one.
Fix the gaps by amending your existing articles ($500 CAD plus HST to prepare), or incorporate a new PREC with the protections built in ($2,000 flat). We prepare the articles; your own lawyer reviews them, and you file with the Province yourself.
Who it's for
You already run a PREC and want to know it is actually protected, not just assume the incorporation service got the articles right. Start with a free rating.
You are weighing whether to incorporate. Understand the conditions first, confirm the tax case with your accountant, then incorporate with the protections built in.
Advising real estate clients on incorporation and compliance. Use the Health Check to triage a client's articles in minutes and focus your time on the judgment calls.
What it costs
Note: the Health Check reads the drafting of your articles; it does not certify that your corporation is a compliant PREC today, which also depends on how the company is owned and run. It does not replace advice from your own lawyer and CPA.
Running the Health Check on your articles costs nothing, and it tells you where you stand: a Red, Yellow or Green rating, and which of the PREC conditions in O. Reg. 536/20 and the tax considerations under the Income Tax Act your current wording does and does not address.
PREC Deep Dive, $100 CAD is the full written analysis: every clause the scan looked at, worst first, what is wrong with each one, why it matters, and exactly what to raise with your lawyer about it. It arrives as a PDF, by email, immediately after payment. The fee is Capital Toolkit's professional fee and HST is added at checkout.
It is a drafting analysis, not legal advice, and it does not replace your own lawyer or CPA. If your articles do not need the work, the report says so.
Two minutes in the browser, no account required. Get your articles rating, then decide what to bring to your lawyer and CPA.
Drafting-quality hints only, not legal or tax advice. Have a qualified professional review before you rely on or file anything.
