Spring is here and so is the Spring Housing Market for Real Estate Agents. As you ramp up to get homes bought and sold for your clients, you need to also think about your own financial situation.
Real Estate Agents can find themselves in a couple of different situations when it comes to their income taxes, and it isn’t always straightforward.
Start by asking yourself, are you an employee of your brokerage or a self-employed individual? This will help you determine what you should be doing throughout the year to prepare for your tax filing. The CRA looks at the relationship between the employer/broker and the agent in determining which.
Are you Self-Employed?
In this situation you have agreed to produce sales, but you control your work and determine your own direction to provide the service to produce those sales; in essence, you are free to act as you see fit. The CRA provides a sample list of indicators as to whether you might be self-employed as an agent (not all might be present – you must consider your working relationship); we’ve including some below:
- You pay fees for services such as administration provided by the brokerage, or the rental of an office space in the main brokerage office.
- You control and establish the rate of commission.
- You provide your own “tools” per se – your own vehicle, camera, computers, etc.
- You may hire your own assistant
- You pay for the advertising for your listings, or pay the brokerage for your contribution of advertising.
As a self-employed individual, you are operating a business. As such, all the rules for operating an unincorporated business apply to you. If you are in a province that allows for the incorporation of real estate agents, then you would follow the rules outlined for operating a corporation and the tax obligations along with it.
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Outside of many typical reasonable business expenses a self-employed real estate agent might have, like other self-employed persons, an agent can consider a few other tax tips for the year for their unincorporated business:
- Are you giving a rebate to your client? Rebates are tax deductible, but you have to make sure that you are handling this correctly in your bookkeeping as rebates to commissions don’t impact the GST/HST you are collecting on the original commission amount.
- Given how sales can be sporadic throughout the year, many agents find themselves short when it comes time to pay their taxes or their GST/HST. Now might be the year to do some planning ahead and make sure you’re keeping accurate accounting records using a system like QuickBooks Online, so you’ll always know where you stand.
- Real Estate courses are important for you, and in many cases, tuition could be an allowable expense for you as a self-employed individual and would be reported on your T2125, Statement of Business Activities.
- Make sure you are tracking your vehicle mileage while using your personal vehicle. This will be necessary in order to claim any allowable vehicle expenses. Remember, you can only claim the business portion based on mileage, if your business does not own the vehicle. You need to keep all of your receipts related to the vehicle expenses as they will be needed at tax time. Your mileage report should include when, who, how many KMs, and why.
- Client gifts are something many agents purchase to celebrate with their clients; be it a bottle of wine or a new ceiling fan, if this is a gift to a client, you must insure you have a receipt and clearly document who it was for and why, in case the expense ever comes under dispute.
Are you an Employee?
This only applies if you were hired to perform specific duties, and those duties are dictated, directed and controlled by the brokerage. Here are some examples from the CRA on whether you might be an employee; this is not an exhaustive list of indicators, but a sample:
- You don’t pay and fees or costs to cover administration services – such as for reception, having a desk in the main brokerage office, and general in house services.
- If the broker retains a percent of your sales to cover those costs above, and only when you have a sale, instead of every month regardless.
- Do you have a sales quota?
- You must provide reports to the broker on a regular basis to explain your activities during a period of time, such as a weekly timesheet.
- The broker covers the advertising of your listings.
If any of these situations sound like yours, then you are likely an employee of the brokerage instead of being self-employed.
As an employee, when you are paid throughout the year, there will be withholding from you pay cheque for EI, CPP and income taxes; for your tax return you will have received at T4.
If there is any confusion as to which applies to you, or to your employee / agent, the CRA encourages you to contact them for a ruling. Click HERE for more details on rulings.
We’re Here to Support You
If the thought of trying to figure out all of your self-employed expenses makes you a little unsure…we’re here to help. To make tax season as simple as possible, TurboTax has created solutions that work for all situations and preferences, including:
- TurboTax Online, a DIY solution;
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- TurboTax Live Full Service, a TurboTax expert fills out and submits your personal tax return on your behalf.
No matter your income or complexity of your return, you have an expert in your corner with TurboTax.
Accounting educator, business strategist, and advisor.
Turbo Tax Canada blog editor and writer.
Susan has been an accounting professional for over 20 years, and has been working with businesses and individuals and their taxes for the past 12. Education is a passion for Susan, and when not writing or talking about tax for TurboTax Canada, she can be found speaking at events, teaching at Mohawk College, and working with many businesses and entrepreneurs through her own accounting advisory practice. Susan is known to be approachable but pulls no punches when it comes to the reality of business finance and taxes.