Lior Zehtser
Other
If you think you’re paying too much tax, here are some ideas that may help. Get started on these ideas now and you may be able to save some money at tax time.
If you are just getting started, meet with an accounting professional right before you start your real estate career so that you know what to look out for. Should you keep receipts? For how long? Most of your questions can be answered in a one-hour consultation.
Stay organized and create a system – whether it’s a monthly/quarterly exercise to separate your various expenses into different categories (envelopes, folders) or inputting the data into a spreadsheet or an online tool (Wave Accounting, Freshbooks, Xero – ask me how!). The more you do upfront, the easier it will be at year-end and the CRA agent may be impressed with how quickly you were able to supply the requested documents, which may play into your favour.
Don’t forget about the GST/HST you collected – this doesn’t belong to you! It would be prudent to tuck away all of the GST/HST you collect on each commission cheque to ensure you have enough funds to remit to the CRA at tax time.
Set up a separate business bank account that acts as the main account for your commission income and expenses. This helps to differentiate between business and personal expenses, but more importantly, it does not open the door for the CRA to review all of your personal activities if you are chosen for an audit.
Tax deductions and write-offs: In addition to all of the standard expenses (advertising and promotions, meals, monthly brokerage fees, board/association dues), here are some deductions that I get questioned about the most:
Commission rebates – If you give a client a commission rebate, it’s 100-per-cent deductible. Real estate agents must remember to keep the GST/HST they collected on the full commission and only provide the rebate, net of GST/HST.
If the property purchased/sold is a principal residence, the benefactor has nothing to worry about. If the property purchased/sold is an investment property, this rebate has tax implications and is beyond the scope of this article – but to make a long story short, it will increase the capital gain (if any) on the property.
Tuition courses: Our firm takes the position that expenses incurred on courses taken to obtain your real estate license and earn commission income should be fully deductible on your Statement of Business Activities. We have seen some accountants in the past include tuition expenses as a tuition credit on a separate schedule, thereby reducing the deductions that an agent can claim. Although a case can possibly be made both ways, because an expense is incurred to earn income in this situation, the deduction should stand as an expense.
GST/HST on vehicle purchase: Tracking the GST/HST you incur on your real estate activities and expenses can add up to significant tax savings and the rules are somewhat black and white. Unfortunately, the GST/HST rules aren’t as straightforward when the purchase in question relates to an item that isn’t wholly used for business. And since the GST/HST you spend on vehicle purchases is usually significant, it is important that you get it right.
The CRA will allow you to include all of the GST/HST you incur on a vehicle purchase on your GST/HST filing if the vehicle is used 90 per cent or more for business. It will disallow any GST/HST on filing if the vehicle is used 10 per cent or less for business. If your usage is in between, there is a formula that must be used to arrive at the GST/HST amount you are allowed to claim.
More things to consider:
– If in any year you owed $3,000 or more in GST/HST, you are required to pay quarterly GST/HST instalments in the subsequent year (equivalent to your GST/HST payable amount in the prior year divided by four).
– You can stop calculating GST/HST incurred on expenses by opting to remit GST/HST using the Quick Method. All that is required of you is to calculate the GST/HST you owe by using a simple formula provided by the CRA.
Copyright © REM 2014