Being a real estate agent in Canada is competitive. You earn income through commission on selling or renting out a property, as a consultation fee or a referral bonus. Your income depends on the sales you make. While you may or may not have had a good year, tax filing is something you cannot avoid. This article will discuss the steps you should take before filing your taxes.

Determine Your Work Status for Tax Filing 

Your tax filing may differ depending on whether you work as an independent agent or as an employee. Hence, the first step to filing taxes is determining your status: an independent agent or employee.

The Canada Revenue Agency (CRA) classifies you as an independent agent if you determine your commission, pay for your advertising, or share the advertising cost with the brokerage, use your equipment like a camera, car, and computer, and pay rent and administrative expenses of the office. If the broker bears all these expenses, and you report your activities to a broker, then you are an employee. 

If you are an employee, the broker will provide you with the T4 slip, and you can file your taxes. But if you are an independent agent, the tax filing procedure changes. Nobody deducts tax for you. So you have to do everything on your own. 

Claiming Business Expense Deductions

One benefit of being an independent agent is deducting all the expenses you incurred to make that sale. 

  • Home Office Expenses: If you have converted a portion (for instance, 20%) of your home into an office, you can deduct that portion of utilities, property taxes, mortgage interest, or rent as business expense. 
  • Travel and Vehicle Expenses: You can also claim travel and vehicle costs (gas, maintenance, insurance) for driving clients around to show properties and driving to meet clients and do paperwork. Remember to segregate business and personal use of vehicles, as this is one place that triggers CRA scrutiny. 
  • Meals and Entertainment: You can deduct 50% of the expense you incurred for meals and entertainment to network and build rapport with your clients or potential clients. 

Other expenses you can deduct include: 

  • Expenses for marketing, online, local newspaper and Yellow Pages ads, billboards, flyers, and business cards.
  • The commission is shared with clients/friends to promote the business. 
  • Fees paid for professional development courses, membership in real estate associations, and licensing fees.
  • Office expenses like desk fees, rent, cleaning services and maintenance, stationery, postage, and magazine subscriptions.

GST Filing 

The above expenses are used to determine taxable income for income tax filing. However, real estate services qualify for goods and services tax (GST) if your total revenue exceeds $30,000 in four consecutive calendar quarters. Even if you don’t meet the revenue threshold, you can voluntarily register for GST if your expenses are high. 

When you register with GST, you charge the CRA-specified GST rate to clients and collect GST from them. Make sure to highlight the GST amount separately in your invoice. You pay GST to the CRA by filing GST returns monthly, quarterly, and annually. 

You can also claim the GST you paid for business purchases/expenses like computers, office supplies and meals. This claim is called input tax credit (ITC). It can significantly reduce your expenditure. 

Common Accounting Mistakes Independent Real Estate Agents Make

You have to do your own bookkeeping and accounting when you are your own boss. Even if you hire a professional accountant, you must provide all the documents and transaction details. That is where mistakes happen. 

Misplacing Receipts Without Creating a Backup

All the expense deductions we discussed above are only possible if you have receipts to back them up. Remember, bank and credit card statements aren’t valid documentary proof in CRA audits. 

Just click the picture of the bill whenever you pay and save it on your computer with transaction details. For instance, if it is a restaurant bill, mention the client’s name, who you had lunch with, and for what purpose. Similarly, for every fueling, note down the mileage and the purpose of travel. It might look tedious at first. But taking 5 minutes to record the documents can go a long way. 

Keeping Bookkeeping for Year End

Even though you don’t make hundreds of deals in a year, do not keep recording your expenses for the year-end, as it can make you miss out on transactions. Recording the transaction on the day it happens can help you claim several costs and reduce your tax bill. If you qualify for GST, updating your records is even more critical as you have to pay GST collected to the CRA and claim ITC.

Mixing Business and Personal Expenses

Being self-employed, you might use your personal account for all your business transactions. But that will make it challenging to classify business and personal expenses. Consider getting a business credit card and swipe all work-related expenses from it. That will help in identifying business expenses. As stated before, these expenses can save you a great deal of tax by reducing your taxable income. 

Contact McCay Duff LLP in Ottawa to Help You with Accounting and Tax Filing 

A skilled accountant can help you organize your records and documents and timely file your taxes while claiming eligible deductions. To learn how McCay Duff LLP can provide you with accounting and tax filing services, contact us online or by telephone at 613-236-2367