Real Estate Agents – Best Practice Moving Forward
The IRD has recently announced they are reviewing the Real Estate Agency sector. They are looking at income tax and GST returns to check that they have been appropriately filed.
More specifically, they are checking what personal expenses have been claimed.
The IRD’s analysis of the industry shows that some Agents claim a high rate of expenses in relation to their income. And whilst the IRD are currently taking an education approach to the industry, we expect Letters of Review will be sent to those Agents showing as red or amber on the IRD system.
To ensure you remain out of the red, we have outlined a number of areas the IRD is concerned with below and have included guidance to help you stay in the green.
Expenses you can and cannot claim:
Entertainment and Gifts
Real Estate Agents typically incur high rates of entertainment and gift expenditure. As such, this is an area of focus and the IRD has issued new guidelines for record keeping for both entertainment and gift expenses. You now need to record:
- The name of the person you are entertaining or buying a gift for.
- The name of their business, and the position they hold in that business.
- The property or address that is the subject of this entertainment or gift.
- The reason for the entertainment/gift.
- The receipt/tax invoice.
The other issue here is gift vouchers. If you buy a gift voucher for someone, you may only get a 50% deduction for tax purposes. The tax treatment will depend on what the voucher is for. For example, a restaurant voucher will only be 50% deductible (as will any vouchers for food and drink), whereas a voucher for something else, such as fuel or a retail clothing store, may be 100% deductible.
The IRD considers a number of Real Estate Agents are inappropriately claiming private expenses. It has identified the following expenses as issues:
Meals - You cannot claim your food or beverage expenses as business expenses unless you are entertaining clients. In this instance, refer to record keeping information stated above.
Private clothing - You can only claim clothing as a business expense if they are protective clothing, or a specific branded uniform distinct to your business. To quote the IRD, you can only claim clothing expenses for “uniforms or specialist clothing that isn’t reasonably suitable for private use and is necessary and peculiar to a particular occupation.”
Personal grooming – No deductions are allowed for hairdressing, cosmetics, hair and skin products, vision or sunglasses, even if required.
Golf and/or gym memberships - cannot be claimed.
Penalties and fines - The IRD will not allow speeding fines or parking tickets as a business expense, even if incurred during work.
Vehicles - This can be complicated due to a number of rules, different ownership structures, and different methods of calculating the business expense portion. The key point for Real Estate Agents, and anyone in business, is that you should keep a logbook. The IRD has a template on its website, or you could use a logbook App (see link below). If you are unsure, call us and we’ll let you know what you need.
Home Office claims
You need to know and document the square meters used for business.
- If calculating based on your actual costs, we also need to know the costs of running and maintaining your home so records of all related expenses need to be kept.
- If you are GST registered, claiming a home office expense could create an issue when it comes time to sell your house.
- Talk to us if you have any questions.
Best practice moving forward:
The new IRD guidelines require more records than ever, accurate record keeping is key.
As outlined above, you need to ensure:
- You have accounting software in place that allows you to record the necessary details of expenses in real time.
- Entertainment and gift expenditure need to be linked directly to clients and/or properties you are selling or wish to sell. Record the details!
- Maintain a logbook for your vehicle – consider an App such as driversnote.com
- No personal expenses such as grooming, gym memberships, glasses, or non-safety / non-branded clothing can be claimed.
The IRD is reviewing the industry and the way you complete your GST returns. If you are unsure, we are happy to look after these for you. And, if you receive correspondence from the IRD – call us before you respond.