The real estate market is booming, and there is no better time than now to become a registered real estate agent. As you rake in cash from selling and purchasing real estate properties for your clients, however, you should also heed your own income tax. For your convenience, we have piled up everything you need to know about your tax obligations as a real estate agent.
First off, whether you’re an employee to your brokerage or a self-employed person makes great differences when it comes to income tax returns. That said, unlike most other full-time positions, all real estate agents are registered with a brokerage and do not work a usual 9 to 5. How to differentiate one from another? Here is a list of indicators for self-employed agents as per the CRA:
- You sponsor advertisements for your listings or pay the brokerage to do so on your behalf.
- You determine the rate of your commission.
- You rent your own office space and pay for other administrative services the brokerage provides.
- You pay for the expenses you incur for conducting the business.
- You hire people and pay them out of your own pocket.
These common indicators aside, you will have to consider your relationship with the brokerage, and cases may vary between individuals. If you’re determined to be an employee, your tax is much simpler in comparison given that your EI and CPP have been paid beforehand, and rules regarding GST/HST do not concern you.
On the other hand, however, if you’re determined to be self-employed, you’re subject to tax obligations for unincorporated businesses if you’re in provinces where incorporation isn’t yet an option. In such case, you may want to take notes of the following tips on tax for unincorporated businesses:
- Keep the receipt for your real estate courses. The tuition can be deductible expenses reported on your T2125. In addition, any expenses that may boost your business can be deductible, such as gifts to clients, office supplies, or advertisements. You will have to keep all the receipts and record in detail their purposes in case of an audit.
- Track your vehicle mileage when you conduct your business.
- Plan ahead for HST concern as sales in real estate can be sporadic and uneven throughout the year.
Since October 1, 2020, the province of Ontario has approved amended regulations to the Real Estate and Business Brokers Act, allowing real estate agents to incorporate (PREC) as a registrant at a brokerage. There are many tax benefits to incorporate, especially for top agents. If you haven’t done so yet and wish to learn more about incorporating your business as an independent agent, feel free to give us a holler any time at your convenience. We’ll take care of every facet of concerns and assist you from setup to takeoff.