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Tax Deductions, Tax Tips, Write-Offs and Claimable Expenses for Canadian Real Estate Agents

Published November 28, 2017 by Real Estate Leads

 

rel-brokeragesMost realtors in Canada are incorporated as their own personal real estate corporation with their name, and the majority of them have been at it long enough to know what that entitles them to do as regards taxes, write-offs, expenses and the like. As is the case these days, however, more and more real estate agents than ever are being licensed in Canada and those who are newer to the business may not be entirely up to speed on what they can and can not claim or file for at the end of the year.

Here at Real Estate Leads, our online real estate lead generation system is an effective way for new realtors to get more leads in their city or town. It’s been especially well received over the last few years, and we’re very happy to make such a valuable resource available to realtors – new, well established, and everywhere in between! A part of what we like to do as well is share insight into what it takes to be a successful realtor in Canada, and as such this week’s post should be plenty informative for many of you.

Let’s start with some helpful tax tips, and move forward from there.

General Tax Tips for Canadian Realtors

The first piece of advice is that you should meet with an accounting professional before starting your business, so that you can know what to look out for. He or she will be able to answer all of your basic questions – should you keep receipts? For how long? Which ones? You’ll find the majority of your questions can be answered in a one hour consultation

  • Stay organized. Far too many realtors are constantly missing documents, are unable to accurately tally up all of their expenses, and / or have trouble providing evidence of their claims when they need to. Start on top of this stuff, and it’ll be easier to stay on top of it all the time.
  • Create a system to separate your various expenses into different categories (and then be diligent about inputting the data into a spreadsheet. By doing more up front, t will be easier at year-end. Tracking your expenses with an online tool such as Wave Accounting, Xero Online Accounting Software, or Freshbooks is highly recommended and very easy for nearly anyone, even if you’re not digitally savvy or good with numbers! Plus, if you are ever chosen for an audit, the CRA agent may be impressed with how quickly you were able to supply the requested documents and this may be significantly to your advantage.
  • Keep records of all GST/HST collected. A good tip is to tuck away all of the GST/HST you collect on each commission cheque to ensure you have enough funds to send along to the CRA when tax time rolls around. You may owe less GST/HST at the end of the year, and if so consider any amount not remitted to the CRA as a bonus! Unfortunately, many agents spend the GST/HST they collected throughout the year, and this of course leads to lots of interest being accrued and penalty charges being added when they end up settling up with the CRA past the deadline.
  • Set up a separate business bank account which acts as the main account for your commission income and expenses. This helps to differentiate between business and personal expenses, and allows the CRA to differentiate if you were ever chosen for an audit.

Tax Deductions and Write Offs

We’ll start by saying that these are not ALL of the deductions and write offs you may be eligible to claim (doing your own research is recommended), but in the interest of keeping this blog post short and approachable will look at the most prominent ones.

Commission Rebates:

We’ve all seen real estate prices in Canada (Vancouver and Toronto most specifically) go through the roof, and as a result clients on both the buyer and seller side are frequently asking their realtor for a reduction on their commission. This is typically done to either help with closing costs, renovations, or to reduce their mortgage balance after the sale has closed. Keep in mind that commission rebates are 100% tax deductible to the realtor. Remember though that you must keep the GST/HST collected on the full commission, and only provide a rebate that is the net of that GST/HST figure.

When a property is purchased/sold as a principal residence, the benefactor will have nothing to worry about. If the property is purchased or sold as an investment property, however, this rebate will have tax implications that are, unfortunately, beyond the scope of this article – click here to learn more – but long story short, it will result in an increase to the capital gain on the property – provided there is one, of course.

Real Estate Courses Tuition:

You’ve got a pair of options with how you want to approach these ones:

  • Including your tuition expense as a tuition credit on your personal tax return (Schedule 11 if you need to know). This is a tax credit and not an expense credit, and while it may result in tax savings it doesn’t benefit the taxpayer as much as a direct expense would. For most it will be included on the business income and expense schedule (Schedule T2125 – Statement of Business Activities) on your personal tax return.
  • Filing your tuition expense as an actual expense on your personal tax return (Schedule T2125). Once you’re working as an active realtor, your Schedule T2125 in your personal tax return will be used to report the entirety of your commission income and expenses to the CRA. The benefit to the taxpayer is much greater than in scenario #1 above when an expense is included in this schedule. The reason being is that it’s a full expense, deduction and write off for Real Estate Agents against their commission income. Naturally, most choose this option.

So, prior to registering as a real estate agent with a brokerage, your tuition courses should be recorded as a tuition credit. After registering with your local REB and incorporating yourself, your tuition expenses should be included on Schedule T2125 to allow you to receive the full deduction.

Some may ask why this is necessary. Well, if your tax return is audited by the CRA and you included your tuition expenses as expenses – rather than credits – and you haven’t registered as an agent yet, they may have issues with it. As an operating business, you can deduct any expense that helps you generate income, and courses are indeed included within that. Keep in mind though that many of you wouldn’t even have known whether you’d get through all of the courses and whether you’d even become registered with a brokerage as a real estate agent. The CRA may take issue with the fact that you’re trying to deduct expenses, and especially so if doing so prior to establishing a business.

GST/HST on Vehicle Purchases:

Tracking the GST/HST you expend on your real estate business activities and expenses can add up to considerable tax savings, and everyone will like the sound of that. As you may or may not know, any GST/HST you collect minus any GST/HST you spend has to be remitted to the CRA. Therefore, the more you spend in GST/HST for your business, the less you will be obligated to remit to the CRA. These same GST/HST rules aren’t nearly as straightforward when the purchase is related to an item that isn’t used EXCLUSIVELY for that business. The GST/HST a buyers spends on a vehicle purchase is usually significant, so it is important that you understand in full what you’re entitled to claim.

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% of the time or more for business purposes. Conversely, it will disallow any GST/HST on filing if the vehicle is used for business 10% or less of the time. If your usage is somewhere in between, a formula can be followed to arrive at the GST/HST amount you are eligible to claim for a business vehicle. Far too many agents fail to make the calculations correctly and miss out on these valuable deductions. Speak to a tax professional if you need to!

Other Major Considerations:

  • If in any year you owed $3,000 or more in GST/HST, you are obligated to pay quarterly GST/HST instalments for the subsequent year (equivalent to your GST/HST payable amount in the prior year divided by 4). Not paying will put you in a position where you have to pay interest until this amount is recouped by the CRA.
  • 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. In a nutshell, the GST/HST you must remit will be equal to 8.8% of your sales – and in some cases that’s a beneficial tax scenario for a realtor!

Sign up with Real Estate Leads here and enjoy qualified, online-generated buyer and seller leads delivered exclusively to you and for your exclusive area of any city or town in Canada. It’s an effective way to grow you business, especially when you’re new to the business of putting people in the right homes for them and their families!

The Inflationary Sweet Spot and Canada’s Mortgage Rate Trends

Published November 21, 2017 by Real Estate Leads

Buying real estate strategy chess game with house backgroundIt’s not often that a house is paid for outright upon sale, and as such mortgages are always front and centre for anyone purchasing a new home. It’s all about rates and terms, and has been for a good many decades now. So for those of you keeping a close eye on Canadian mortgage rates with the understanding of how they’ll affect your clientele and their buying power should pay close attention to new inflation data in Canada, providing plenty of clues about where our rates are destined to be in the near future.

Here at Real Estate Leads, our online real estate lead generations system for Canada has proven to be hugely beneficial for any realtor who’s not getting the traction they want out of traditional prospecting means. Leads are opportunities, and a part of making that opportunity into a client is in being especially well-informed and providing those insights to those prospective buyers.

Heightened Uncertainty

Much of this inflation data will seem quite technical at first glance, but the overall trends are not difficult to spot. Last week showed that our overall inflation rate – as measured by the Consumer Price Index (CPI) – fell from 1.6% in September to 1.4% by the end of October. That’s scratching the bottom of the Bank of Canada’s (BoC) target band that sits at 1% to 3%, and well below the official 2% target. It would seem that inflation still isn’t pushing the Bank to raise its policy rate any time soon.

Within a mortgage-rate context, that means that variable-rate borrowers won’t likely see their rates rise over the near term, despite that being forecast. We’re also seeing subdued inflation taking pressure off Government of Canada (GoC) bond yields. These bonds determine how our fixed mortgage rates are priced.

Let’s first examine recent BoC observations about current inflation, and how the Bank is using monetary policy to manage inflationary risks through a period of heightened uncertainty. The interpretation of the inflation data by the BoC is more important than the inflation data itself.

The output gap is one of the key measures that the BoC uses to forecast inflation, measuring the gap between our economy’s actual output and it’s maximum potential output. As economic growth accelerates, the output gap begins to shrink and we eventually see a scenario where our economy’s resources outstrips its supply.

This results in rising costs, and the BoC would typically respond by raising its policy rate to slow economic growth and slow that inflationary pressure. Deciding on the right time to make that move isn’t easy, because our economy’s maximum potential output is not fixed and it’s not unlike trying to hit a moving target. Businesses invest in capacity expansion, technological advances improve productivity, and workers re-enter the workforce to change our maximum output capacities.

The Sweet Spot

Recent observations suggests that our economy is now hovering in an “inflationary sweet spot” where not only is the actual output expanding, but our maximum potential output is too. The significance of this is in the fact that it delays the closing of our output gap and extends our economy’s runway of non-inflationary growth. This sweet spot won’t be around indefinitely, but for as long as it is then the traditional correlation between growth and inflation won’t apply.

This current state of non-inflationary growth relieves the BoC of its concerns about needing to ease inflationary pressures in the near future. However, the Bank has repeatedly emphasized that it must be looking well ahead and into the future when establishing monetary policy. This may involve adjusting it pre-emptively.

So – if we’re trying to anticipate where mortgage rates are headed, an understanding of the BoC’s longer-term view will be required.

Here’s what they’re seeing:

  1. Wage costs, output potential, trade negotiations, and on the effects that the Bank’s two recent policy-rate increases are playing into our economic momentum quite strongly.
  1. The BoC’s monetary policy is “asymmetric” and geared to respond more aggressively to negative shocks than positive ones. The feeling is that it will be better to tighten monetary policy slowly as our economic prospects improve.
  1. The BoC is taking a patient approach because inflation has rested in the lower end of that 1-3% inflation target band for some time. Downside risks carry greater weight.
  1. There is concern that higher household debt is heightening the sensitivity of spending to interest rate increases. Add that to BoC’s belief that it can take up to twelve months for the economic impact of policy rate increases to be fully evaluated and it seems rate hikes aren’t likely to be considered again until 2018 is winding down.

Let’s now move to key data for this inflation analysis.

As mentioned above, CPI fell from 1.6% in September to 1.4% in October, and last year the BoC adopted three more technically detailed sub-measures called “CPI-common”, “CPI-trim” and “CPI-median”. Looking at each;

CPI–Trim is a measure of core inflation that excludes CPI components whose rates of change in a given month are located in the tails of the distribution of price changes. It allows for stability and doesn’t allow any single factor to pull at the overall picture. It was unchanged at 1.5% in October on a year-over-year basis.

CPI–Median plots the monthly percentage change in the price of each CPI item on a scale,then using the price change of the item at the mid-point of that scale as the CPI-median. This fell from 1.8% in September to 1.7% in October on a year-over-year basis.

CPI-Common is a measure of core inflation that tracks common price changes across categories in the CPI bundle, and it rose from 1.5% in September to 1.6% in October on a year-over-year basis. This suggests changes in overall aggregate demand, rather than sector-specific changes.

Summary

At least as far as the near term is concerned, the BoC’s belief is that our economy is currently in a favourable position where it can expand without promoting more inflationary pressures. When we look at this long term, the Bank advises monetary-policy caution, and that is ‘doable’ as long as inflation remains subdued. With this understanding, the consensus seems to be that both our variable and fixed mortgage rates will remain at or near today’s levels until we are well into the coming year of 2018.

Sign up with Real Estate Leads here and receive qualified, online-generated buyer and seller leads delivered to you exclusively for your protected region-of-choice in Canada. It’s a great way to build your client base, and as this Bank of Canada analysis reveals there’s no better time than the present to take advantage of more-stable mortgage rates through Canadian banks.

5 Daily Habits Of Most Successful Realtors

Published November 16, 2017 by Real Estate Leads

Extensive series of a Caucasian Real Estate Agent and African-American Couple in front of a home.

Many people who are new to working as a real estate professional quickly come to realize that there certainly isn’t any truth to the idea that this is going to be a relatively easy, ‘get rich quick’ sort of career arrangement. Being successful in real estate requires hard work, dedication, and plenty of time – just like it is for any other career. If you want to get ahead and take a lion’s share of the pie when it comes to clients and listings, you’ll need to apply yourself in full AND make smart decisions along the way.

Here at Real Estate Leads, our online real estate lead generation system is a very productive tool for anyone who’s new to the business, and the fact it’s been so well received right across Canada suggests it’s a real asset for new realtors as well as those who are well established in their communities.

As stated above, you do in fact need to apply yourself in full and make smart decisions But you also stand to benefit greatly if you also begin developing good habits, and ones that you stick to nearly every day. Here is what some of the top real estate agents do on a daily basis to achieve and maintain successful businesses.

  1. Establish a Morning Ritual

Many real estate coaches advise that you begin every day with a morning ritual. Whether it’s meditation, prayer, yoga, exercise, or simply making a certain hot beverage a certain way, a daily ritual gets your mind in gear to take on the rest of the day.

Get up to date on the local market, looking at new listings, status changes, price updates and more and make your own notes – digital or on paper – about both how they’ll relate to your current efforts and what you see them being in the ‘bigger picture.’ Next, review your calendar so you know what’s coming up, and can prepare for the day accordingly. One surprisingly effective tip is to practice scripts and role playing to warm up to the communications you’ll conduct during the day.

  1. Time Block Your Schedule

Time blocking your schedule for specific activities makes it more likely that you can maintain a process for staying on track without becoming overwhelmed with your tasks. A successful realtor will be blocking time on his or her daily calendar for these activities:

  • Active prospecting
  • Follow-up and responding to leads
  • Showings and appointments

Further, some agents only schedule their showings and listing appointments during certain hours in the afternoon, which allow for keeping mornings open for follow-ups and prospecting.

Time blocking also helps you know when it’s time to call it a day, which is important in the interest of a healthy work-life balance. By sectioning your tasks into dedicated time slots with firm start and end times, you are much more likely to be better focused on tasks at hand.

  1. Prospect – The Smart Way

Hacking away at a gigantic database and trying to make sense of where you should focus your efforts isn’t going to work out well for anyone. Divide your database into smaller segments, and ones that are customized to your needs. Categorize leads by their price range, search area, leads you haven’t contacted yet, or ones that are active on your site.

Once these workable lists are in place, you will be able to reach greater numbers of leads faster, as well as make better tough decisions about which ones continue to be ‘warm’ and which ones are cold enough to be move to a back burner, or off the list entirely.

  1. Check Transaction Statuses

Even after a deal is closed and a home has been purchased from / by your client, there is still a significant amount of work that needs to be done to complete the entire transaction. It takes a lot of organization to make sure a transaction is running smoothly, and that everyone involved – from lenders to transaction coordinators and title and escrow companies to others further down the line – are all on the same page.

There are a number of new apps and other technologies that help realtors monitor ongoing transactions, check the status of them, and see what tasks still need to be done, along with tracking future closings that are in your pipeline. Look into them.

  1. Make Time for Healthy Living Pursuits and Relaxation

This career can really wear you out, especially when a day involves many tasks, meetings, AND driving all over town. A realtor who’s overly stressed or burned out is going to be at a disadvantage, so the last habit we’re going to relate here today is to make time for healthy living activities like exercise or hobbies in the evening, as well as making sure you can relax and unwind before getting the sleep you need.

You’ll be much better in the morning for both of them, and that’s a BIG plus for you when you take on the next day the same way you did this one. Definitely make healthy living pursuits and relaxation activities / techniques a part of your daily habits.

 

Sign up for Real Estate Leads here and receive a guaranteed volume of buyer and seller leads delivered to you exclusively and for your own exclusive region of your city in Canada. Many of the best ones have already been claimed, so don’t delay in claiming yours if you like the sound of many more prospect opportunities for your realty business. It’s proven effective, as our testimonials page will attest!

Census 2016: A Quick Review for Real Estate Agents

Published November 9, 2017 by Real Estate Leads

census, red stamp on a grunge paper textureFor the average Canadian, home ownership is on the decline, we can look at the high ownership cost in the three flagship cities as a direct correlation for this downswing. However, a higher rate of homeowners is now taking on mortgages, as well as a cost of carrying a home continues to show large growth. This is great news for those looking to sell homes on the market, and here at Real Estate Leads, we have the breakdown that matters.

5.6 million and counting

The total number of mortgages in the country grew to a staggering 5.6 million. Census 2016, which was conducted in early and mid-May 2017 showed 5,686,576 residential homeowners were still paying down a mortgage. This represents a 7.66% increase from the last long-form Census which was completed in 2011. However, this number is a little higher than expected, as unlike official numbers, the Census 2016 is self-reporting, and includes private mortgages. This is not normal for most real estate guides and does skew the numbers just a tad.

3% rise in homeowners with a mortgage

Another interesting stat to come out of the Census 2016 is that the rate of homeowners with mortgages got a 3% lift. Compared to 2011, the rate raised by 3.58% up to 60.7% of Canadians homeowners having a mortgage. This is an interesting trend, as although general homeownership is down, the rate of homes with a mortgage is up.

Homeowners costs are up 15.54%

Since 2011, we have seen costs go up substantially, but no more than those associated with homeowner costs. This median has risen over 15% to 15.54%, which is astronomically high. This would mean that the median cost of shelter from homeowners is $1130. Think about it this way, inflation growth over that same time period would only be 8%, this is almost double it. Consider the fact that we have a rapidly ageing population in this country, and the issues of affordability in our largest cities, it might represent a bit of a downturn in the market due to the cost of new homes.

So now what, well for us in the real estate business it is business as normal. Consider that only 1 in 7 people in Canada have a mortgage, and of the Canadian population, under 50% are currently part of the workforce. We have a new generation of home buyers, and although they have yet to start to flood the market, for those in the know, it is coming. Expect to be working with a smarter and better-educated client, and that is not a bad thing. What trends do you think will come out of the next long forum Census, continued decline in home ownership, or will we start to see things even out for the next generation? Leave your comments below!