In a previous post, we shared a detailed checklist for real estate agents who have incorporated their business under a Professional Real Estate Corporation (PREC). In this article, we will delve into the expenses that real estate professionals can legally deduct. It’s important to know that these deductions are easy to understand and apply, and they can be utilized by both self-employed and incorporated (PREC) realtors.

General Rules:

As a real estate agent or broker, you might be wondering which expenses you can deduct from your taxes. The good news is that the general rule is straightforward:

The Income Tax Act allows you to deduct all reasonable expenses you incur while earning business income, with only a few exceptions. That means if you can prove that an expense is related to generating your income, you can deduct it confidently. However, remember that bank and credit card statements alone are insufficient to support your deduction if the CRA ever audits you. Always keep your receipts and consider storing them electronically to avoid any issues.

By following these simple rules, you can be confident that you’re deducting the right expenses and maximizing your tax benefits.

The primary deductions that are permitted:

1. Professional Liability Insurance and General Liability Insurance:

Both professional liability insurance and general insurance for your business/office are deductible expenses as required by TERB/RECO.

2. Professional Membership and License:

Membership fees paid to maintain realtor status with TERB/RECO are fully deductible.

3. Hiring an Assistant:

Hiring someone to help is 100% tax-deductible, but it’s crucial to determine whether they’re an “employee” or a “contractor” to meet legal, tax, and procedural requirements.

4. Broker Charges:

As a real estate agent, you may have various expenses such as desk fees, transaction charges, split commissions, and office admin fees. Your broker will issue T4A slips to report your income, which can be reported on a gross or net basis. It’s crucial to reconcile it with the Tax Worksheet provided by your broker. Keep track of your income and expenses to stay on top of your game!

5. Coaching, Training, and Conferences:

Real estate professionals often seek the services of a professional coach to enhance their business skills. These expenses are fully tax-deductible. Additionally, if you’re a sole proprietor and attend a conference related to your business, you’re allowed to deduct up to two conferences per year. In the case of a corporation, there is no limit on the number of conferences that can be attended per year.

6. Client Rebate:

Realtors often share commissions with clients or friends for business promotion, which is a tax-deductible expense. Documentation is crucial; if handled by the brokerage, they’ll manage the documents, otherwise, pay by check and include property information in the memo line. Keep a copy of the canceled check.

7. Advertising:

Promoting your business can cover a lot of expenses, such as designing and printing flyers, business cards, and other promotional materials. It can also include staging, hosting open houses, hiring someone to clean or paint your space, and more. Get creative and take advantage of all opportunities to promote your business!

8. Meal & Entertainment:

Treating your clients to a nice meal or some entertainment can go a long way in building relationships. And guess what? The CRA agrees too! You can actually deduct 50% of the expenses incurred on meals and entertainment related to your clients. To make sure you can claim this deduction easily, don’t forget to snap a picture of the receipts and jot down the name of the client you were with. In case of an audit, the CRA may ask you about the client you were wining and dining, so it’s always a good practice to keep track of these details. Happy wining and dining!

9. Website and Software Expenses:

Investing in development, design, promotion/SEO, and related expenses can provide significant benefits for your business, and the good news is that these costs are fully deductible. Additionally, expenses related to lead generation, client lists, and other crucial aspects of your business are also considered legitimate expenses. By leveraging these opportunities, you can help your business grow and thrive.

Motor Vehicle Expense:

As a real estate professional, traveling is integral to your job. It’s important to keep track of your motor vehicle expenses. To make sure you’re able to deduct the appropriate amount, keep a record of the total kilometers driven and the portion of those kilometers driven for earning income. Remember, you can only claim expenses directly related to using the vehicle for income, including:

1. License and registration fees;
2. Money borrowed to buy a motor vehicle;
3. Leasing costs;
4. Capital Cost Allowance (depreciation);
5. Fuel/oil costs;
6. Maintenance and repairs;
7. Insurance

11. Additional Deductible Expenses:

1. Client’s gift/gift card
2. Office rent
3. Home office-related expenses
4. Office supplies expenses
5. Interest on loans & finance obtained for business purposes
6. Equipment used for business, such as laptops, desktops, etc.
7. Business-related Telephone & communication
8. Legal & accounting fees
9. Bank Service Charges

GST/HST Remittance:

It’s important to understand that the GST/HST you collect is not your personal revenue. Many realtors have faced challenges when they spend the collected GST/HST and then struggle to pay it back. To avoid this, it’s wise to keep meticulous records of the GST/HST you collect and pay and to track the GST/HST you paid on your business purchases. This way, you can receive a refund or use it to offset your GST/HST payable to the CRA without incurring any interest or penalty charges.

Final Words

The list of expenses mentioned above is applicable to most realtors and brokers, but there may be some exceptions, and every case is unique. If you have a good understanding of the general deductible principles discussed earlier, you are very close to achieving your goal.

Partnering with Xceed Accounting to establish a highly effective system eliminates complications and gives you the confidence to concentrate on your business while saving a significant amount in taxes, penalties, and interest.