Understanding Taxes for Real Estate Salespeople and Agents

As a real estate salesperson or agent, managing your tax obligations is essential to stay compliant and optimize your financial position. Here's a comprehensive guide to help you navigate income tax, expenses, GST, and tips for filing returns.

Income Tax

Income tax is calculated on your net profit for the year, which is your gross income minus any eligible expenses or losses.

• Schedular Payments:
  Commissions paid to real estate salespeople/agents are typically considered schedular payments, taxed at a flat rate of 20%.

• Tax is calculated on the GST-exclusive amount.

• The payer deducts this tax, unless you hold a valid certificate of exemption.

Important Filing Tips:

1. Use the total commission figure from your invoice for GST filing, not the amount shown in your bank statement, to avoid under-declaring income.( See example below: $6,135.22 is the amount should be you income in your GST Return)

2. Ensure your tax invoices clearly separate the GST-exclusive and GST-inclusive amounts.

3. Add any business-related expenses to the assessment.

End-of-Year Tax Returns

At the end of the tax year, you'll receive an automatic income tax assessment in myIR.

• Check to ensure your schedular income and deductions are correctly listed.

• Add any business-related expenses to the assessment.

Example: Tax Invoice for a Real Estate Agent

Here’s a breakdown of how taxes and GST are calculated from a commission invoice:

This example illustrates how commission, GST, and tax are calculated and reported in your GST and income tax returns.

Claiming Business Expenses

To claim a deduction for any business expense:

• You must have spent the money yourself and not been reimbursed.

• The expense must be directly related to earning your income.

Gift Expenses

You can claim deductions for gift expenses if the gift has a clear connection to earning your income. However, the amount you can claim depends on the type of gift:

• Food and drink gifts: Only 50% is deductible.

• Non-entertainment gifts: Fully deductible if they meet the criteria.

Required Documentation for Gift Deductions:

• Dates and details of the gifts.

• Names of the recipients and the businesses they represent.

• The reason for the gift.

• Supporting invoices or receipts.

Clothing and Grooming Expenses

• You can claim deductions for distinctive work clothing, such as uniforms with logos.

• You cannot claim deductions for plain workwear (e.g., black pants, white shirts), grooming, or cosmetic expenses, even if your employer requires them.

Home Office Expenses

If you work from home, you can claim a percentage of your home expenses as a business expense.

How to Calculate Home Office Expenses:

1. Determine the square metres of your home used for business.

2. Calculate the percentage of time the area is used for business versus personal use.

3. Apply this percentage to your home expenses (e.g., electricity, rent, or mortgage interest).

   
   

Meal and Entertainment Expenses

• Business meals (e.g., client meetings): 50% deductible as entertainment expenditure.

• Entertainment: Fully or partly deductible, provided it is directly related to earning your income.

Other Deductible Work-Related Expenses

You can claim deductions for:

• Advertising and marketing.

• Stationery and office supplies.

• REA license renewals.

• Accounting fees or accounting software.

• ACC levies.

• Wages paid to personal assistants or salespeople.

• Ongoing training, seminars, and conferences directly related to your work.

Vehicle Expenses

You can claim vehicle expenses for:

• Business travel between two workplaces for the same agency (e.g., traveling between two residential open homes).

• Business and personal use vehicles, provided you keep a logbook to determine the percentage of business use