Searching For Tax Deductions Common To Realtors

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Similar to many business owners, realtors are frequently looking to ensure that they are getting all possible tax deductions. The vast majority of realtors operate as businesses, as compared to employees, and thus share with other industries an assortment of tax deductions.

Unfortunately, many realtors begin this earnest search for tax deductions from February through April for the prior year. We want to see business owners, including realtors, plan for their deductions in advance. Ideally this planning takes place during the summer and fall, and not just for the current year, but for years to come. Further, this planning should integrate other current and future business plans or activities, or side businesses such as real estate investing. Working with a team of advisors who are very familiar with realtors can pay off handsomely!

Structuring Your Business

The majority of financially successful realtors, or those who plan to become financially successful, will first benefit from allowing at least a portion of their income to be earned by a corporation. Various provinces allow for realtors to incorporate, however, Ontario is a noticeable exception. As such, you need some alternative planning.

For those realtors who find that their professional bodies and/or brokerages prevent them from creating professional companies or sub-brokerages (and thus the ability to incorporate), they should seriously consider using an alternative, especially those top performers, or those intending to be a top performer. It’s simply too easy to save tax money by using virtually risk free corporate rates of taxation that are typically 20% to 35% lower than the personal tax rates. We haven’t even begun to look for deductions and may have carved off an enormous percentage of your taxes!

“Mickey Mouse” Deductions

Too many realtors get overly preoccupied in looking for the “sexy” or overly creative deductions. As well, they can focus on smaller items which get too much attention from the CRA. For example, don’t get carried away and claim meals and entertainment deductions on February 14, or your anniversary or birthday. That’s not to say there is a restriction on such deductions, but that you obviously need to be a little more careful to ensure the expenses are truly deductible. An auditor who sees you’re happy to deduct a dinner with your spouse on Valentine’s Day, will typically be quite interested to see what else you may be willing to attempt to deduct. All this extra attention for a nice dinner and bottle of wine (which I am all in favour of in the right circumstance-and highly recommend involves your favourite accountant). A “Mickey Mouse” deduction.

Investments Providing Deductions

I expect that the most common deduction, and frequent question we receive in January and February, relates to RRSP deductions. While I personally believe these deductions are overused for certain business owners, they unquestionably can be very valuable in the right circumstances. Planning for these contributions in advance helps ensure that they are being properly completed from not only a tax perspective, but from an investment perspective. Just avoid the “not sure what else to do to cut taxes, let’s stick some money in this fund/company” situation.

Structuring investments may be much more valuable than simply making an RRSP contribution. For example, it may be a great idea to look at TFSA’s, RESP’s, non-registered investments, capital or dividend intensive investments outside of registered investments, corporate investments, life insurance investments, private company investments, limited partnerships, public but infrequently used/known investments etc. Different situations will help determine what is best for you, with the assistance of qualified investment advisors and tax accountants. And yes, some investments are restricted to those who qualify (typically financially) to acquire the investments. If you’re not sure, perhaps it’s time to ask for some guidance!

Oh, and one more possibility to consider. Maybe it’s a fantastic idea to add some real estate to your investment portfolio!

Overall, putting a carefully thought out plan in place where the investments are structured in a tax favourable fashion while considering your needs and desires can be much more beneficial than a handful of tax deductions. Tax favourable and high profit investments can be worth their weight in gold, so to speak.

Bookkeeping System

Seems elementary, yet many business owners and realtors skip this basic building block for various reasons. This can result in “easy pickings” for a CRA auditor. Further, it is one of the most common reasons for missed deductions. If you cannot identify the deduction properly for the CRA, or for that matter yourself when it comes time to record the expenses as part of your tax return, you have just lost the easiest tax deductions – those that you have already incurred.

Creating a scalable system may not seem a necessity initially, however, your business will hopefully grow. Setting up this system at the start can save significant costs and headaches down the road. It is much easier to set up the proper system when your business is smaller as compared to when you are a major player seemingly burning the proverbial candle at both ends.

Regularly keeping your records up to date makes perfect sense from a decision-making criteria – you can’t manage what you can’t measure. But, it also makes your regular reporting to the Canada Revenue Agency much easier. I can have difficulty remembering my expenses from last week let alone those from several months ago. Keeping my bookkeeping up to date avoids great frustration.

Bookkeeping is easy to assign to an assistant or outside source, or more likely some combination. This helps ensure that your time is spent doing what you do best, make more money at, and likely enjoy much more. Many of our clients will use an assistant to complete some portion of their bookkeeping, even if just to assemble in an organized manner the records related to their various expenses. This then allows our bookkeeping team to either complete the bookkeeping or perhaps complete specified portions such as monthly bank reconciliations or payroll functions.

Vehicle Expenses

We’ve spoken frequently on vehicle expenses and are providing some links to prior articles. However, a couple of quick comments for your consideration.
• First, a car log is critical during most audits. It’s hard for the auditor to debate a well-documented log.
• Secondly, please don’t blindly believe that leasing a vehicle is better than owning, or that having the vehicle in a corporation is better than personally owning/leasing the vehicle.

It may very well be that one is better than the other, but the sage advice of your car dealer or neighbour is still worthy of a quick confirmation with your accountant.

Lastly, for now, keep in mind that there are restrictions to how much of a vehicle may be deducted whether owned or leased. And further, there are several formulas and exceptions. As a general thought, if the price of the vehicle is greater than $30,000 before taxes, you are likely to have restrictions. Please be cautious of those saying you can deduct much more through a lease. There are restrictions and multiple formulas that can provide unpleasant surprises.

Home Office

Many realtors will deduct home office expenses for which we have prepared a checklist. To deduct these expenses you need to meet one of the following two tests:
• The work space is your principal place of business; or
• The work space is used exclusively for the purpose of earning income from business AND is used on a regular and continuous basis for meeting the clients, customers or patients of your business.

Clearly the first test is easier to meet in most cases and allows a realtor to use an extra bedroom as an office. A “reasonable” allocation of the room in this example is needed between the personal and business element. In most cases though, the room is likely used well over 95% of the time for the office and hence would be entirely deductible in practice.

That being said, a square footage allocation may be more reasonable to effectively carve out a portion of the room where the bed is unless also used as part of the office for laying/storing of materials files etc. Have a quick discussion with your accountant. It will be worth it.

Watch out for the impact of the broker’s office. Again though, in practice we rarely see realtors using their broker’s office as the primary place of business except for commercial realtors. Even then, the home office may be supreme particularly considering that most realtors will spend significant time on the road.

Business Checklists

Methodically deducting your available expenses can pay off enormous dividends while trying to save tax money. We offer realtors and business owner checklists to help them identify what expenses that they can consider for deduction. A few points regarding the checklists are worth mentioning.

First, the checklists are there to suggestion deductions that you MAY qualify for. Your tax advisor can help ensure you are eligible.

Second, checklists are not comprehensive lists but hopefully trigger the thought: what else do I spend money on that may be deductible?

If you’re not sure if something is deductible, jot down a note or send an email so we can help determine if there is an opportunity for another deduction. These also make great topics of discussion during tax planning meetings.


Tax season is about preparing the figures for last year as compared to planning for last year. Any planning should really be focused on next year, and improving on your prior year or years. Typically we find good planning starts with understanding where we are today, where we want to go, and providing ourselves with adequate time to sit down and discuss our options including, frequently, what is our ideal structure today and down the road.

Checklist Links

Article Contributor
George E. Dube, CPA, CA
Partner, BDO Canada LLP | @georgeEdube
Dube & Cuttini Chartered Accountants LLP